Naubet Bisenov in Almaty -
Two of Almaty’s biggest classified ad newspapers will go digital-only from next year. After 18 years in print, the decision to kill the hardcopy sisters of the country's most popular websites kolesa.kz and krisha.kz – car and property marketplaces, respectively – has been prompted by losses and the growing trend in Kazakhs buying goods online.
The popularity of these websites with Kazakh netizens is so great that they attracted foreign investment worth $15mn in April, in one of the biggest internet deals seen so far in the Central Asian country. "This is the hugest deal in the entire history of the Kazakh internet," declared Mikhail Lomtadze, chairman of Kaspi Bank's board of management and co-owner of the websites, in April, referring to private equity firm Baring Vostok Capital Partners' investment in the firm that owns the classified ad papers and websites.
When it invested in Kolesa LLP, which owned the newspapers and websites, Baring Vostok had already enjoyed several successes with well-known internet companies in former Soviet states, such as Russia's largest search engine Yandex.ru and Russian classified ad websites Ozon.ru and Avito.ru. "With the arrival of the international investor in the person of Baring Vostok, our company has acquired much greater opportunities for future successful development and expansion of its market positions," Lomtadze said at the time.
The weekly Kolesa car and Krisha property newspapers, launched in 1996 and acquired by Lomtadze and partner Vyacheslav Kim in February 2013, had become very popular with Almatynians because they offered targeted, niche adverts unlike "horizontal" classified newspapers that covered everything from cars and housing to pets, Nikolay Babeshkin, director of Kolesa, explains to bne IntelliNews. "The newspapers immediately gained momentum quickly, becoming flagships in Almaty and offering a model for regional outlets," he says.
The newspapers developed well until broadband internet started booming in Kazakhstan: in 2006, after some hesitation, the owner of the titles decided to set up websites to mirror adverts placed in the hardcopy online. "The websites quickly became No. 1 in terms of hits, as there was little content available on the Kazakh internet," Babeshkin says.
The scope and room available on the websites for flats and car sale ads vastly improved the quality of the product, allowing users to use various filters to narrow their searches. As such, the company decided to separate the online and offline versions of kolesa.kz and krisha.kz, Babeshkin explains. "This also marked a fall in the circulations of the newspapers, because they were limited to Almaty, whereas the websites developed rapidly as they could cover the entire country," he says. "The more successful the websites became, the more the newspapers deteriorated."
The first investors in the company, Lomtadze and Kim, foresaw the death of print and have invested money exclusively in the development of the online editions over the past two years, because "no one will invest in newspapers with falling circulations," Babeshkin says.
About two-and-a-half years ago, the revenue of the websites overtook that of the newspapers; the company's overall revenue grew by 30% a year on average, with 80% growth in online revenue compensating for the losses made by the hardcopy editions. This led to the decision to end the print editions from January 2015. "When we close the newspapers our profits will remain the same, but our revenue will slightly fall," Babeshkin sighs. "But this is a strategically correct decision, as it will enable the team to fully focus on the internet."
With the closure of the newspapers, the company will have to shed 50 members of staff whose skills are not applicable for online only. However, Babeshkin hopes the company's revenue will start growing again by March, as January and February typically show sluggish sales anyway.
The company's online revenue mainly comes from two equal sources at the moment: the placement of classified ads and online commercials it sells to corporate advertisers. Babeshkin says revenues will rise if the company adjusts the fees it charges for the placement of classified ads; with the first seven days of an ad posted on the websites free-of-charge, not many users are willing to post their adverts for another seven days, even at a paltry $0.25. Despite this, those who value their time spent on creating a new ad make up the numbers: on average krisha.kz publishes 15,000 new ads a day and extends 14,000 existing ads daily, while kolesa.kz's numbers are 17,000 and 11,000, respectively.
The extension of ads and paid services, such as bringing the ad to the top of the list and marking it to stand out, make up 90% of the company's revenues raised from classified advertising.
Another possible source of revenue, Babeshkin tells bne IntelliNews, could be a fee that the company would charge motorists and homeowners for helping them sell their cars or flats. "But the market is not yet ready for this," he complains.
According to J’son & Partners Consulting, there are 11.5mn mobile internet users in Kazakhstan, marking a penetration rate of 67%. This has boosted demand for the company's mobile apps, which caused a drop in the number of unique users who visit its websites: 100,000 people use Kolesa's mobile app daily, versus about 300,000 unique users kolesa.kz receives per day on average. "This is a huge number [of mobile app users] because the website's counter counts the same user accessing it from different IP addresses as different users," Babeshkin explains.
As the internet has killed the newspaper business, so the app will kill many internet businesses. However, advertisers are not yet ready to place their commercials in apps, because companies still lack mobile versions of their websites. "Even we don't have our mobile versions at the moment, but they should be launched within the next six months," Kolesa's director promises.
Investors bring know-how
The $15mn new investment from Baring Vostok puts the value of the company at between $30mn and $60mn, allowing it to launch a new website for classified ads outside the car and property markets. The new website, market.kz, covers jobs, hobbies, pets, electronics and other areas where the company hopes to make money in the future. This latest online marketplace, launched in April, already boasts 85,000 active adverts, which are posted free-of-charge.
The investment has also enabled the company to promote the websites in the regions of Kazakhstan, thus growing its client basis and offering new services and products. For example, Babeshkin says, the kolesa.kz website has started offering free-of-charge checks of cars put up on sale by approved garages, in order to speed up the sale of the car and ease the process of obtaining a loan from a bank for the buyer. This allows the website to earn a commission from the bank. "We are also thinking of ways to make transactions between home sellers and buyers more comfortable, so that they receive adequate services for commissions they pay estate agents," Babeshkin says, referring to the fact that estate agents charge both sides a commission of $1,000 for their intermediary services.
The new investors have also already suggested innovations that they have tested in other markets for adoption by the Kazakh marketplace. "We are receiving fascinating ideas from our investors. Moreover, they tell us what results we will achieve if we implement their ideas and this is fantastic," Babeshkin says.
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