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Time
has expired for NBCi NZ (formerly GlobalBrain). Since April 2001 when NBCi
decided to close up shop, potential buyers had a two-month window to purchase
subsidiary NBCi NZ as a going concern. Despite strong interest no deal was
signed. The opportunity has now lapsed and NBCi NZ has joined the list of
tech-wrecks smashed against the rubble of dot com hype.
Redundancy
notices were issued to the 25 NBCi NZ staff mid-June. With a desperate shortage
of qualified software engineers, lean technology companies are scavenging the
pickings.
As
each promising sales negotiation failed, the future of NBCi NZ looked grim. The
weeks were fraught with apprehension for staff. In an effort to relieve the
tension they held a big party spiced with a bittersweet T-Shirt design
competition. One of the entries was inscribed in dictionary format: “Fortal: n.
slang, a F^*ed Portal”. It seemed to echo the general sentiment well.
NBCi
NZ started life as GlobalBrain back in February 1998. Its aim was to
commercialise specialist search and learning technology. A hangover affected
idea by the then 28 year-old Dr Grant Ryan on how to improve search engine
technology, kicked it all off. From that day on Ryan, together with his
brothers Shaun and Craig and partner Wayne Munro, researched the viability of
the concept. On realising it could work, they sold the idea to friends and
family who together helped provide the necessary angel capital needed to
convince the big US Internet players.
Dr
Ryan’s multi-million dollar technology idea involved ‘intelligent popularity’
search of websites to help users sift their way around the web without being
sent on a wild goose chase by irrelevant sites. It worked by learning what
sites users liked and disliked. The technology then prioritised the relevant
hits in future searches.
“The
unusual thing about this business opportunity was that we could not start the
company by ourselves, as we required lots of people to be using it before it
would work. This meant we had to partner with a large company. This was a
particularly difficult thing to do for a start-up working from the kitchen
table, and with no history,” said Grant
Ryan.
With
help from experienced negotiators, GlobalBrain was trespassing on big boy
territory and talking to all the main portal companies in the US by the end of
the year. Out of all of them GlobalBrain chose to sell 10% of the company to
Snap.com – the fastest growing portal backed by NBC, a major media company
itself owned by the largest company in the world, General Electrics. With GE
Chairman, Jack Walsh, on the board credibility was high and the offer seemed
infallible.
“It
seemed the best opportunity and offered the best deal by a sizeable margin,”
explained Ryan. “It was complicated however, as it involved exclusive and
non-exclusive licences, technology support agreements and equity exchange
agreements.”
From
idea to profitable company the process involved 12 months hustling, five law
firms, four accountancy companies, hours of work, worldwide patents, endless
talk, seven visits to the US and ‘a vast amount of luck’.
“In
hindsight it was quite remarkable that we put together this deal,” reflected
Ryan. “But those were crazy times in the US market, and we did put together a
pretty good story. Once we had the first deal signed with Snap, we focussed
totally on delivering software that worked and made an impact. We did this so
well that by the end of 1999 we had 15 people working for them.”
During
this year the US parent built up confidence that the work could be done just as
well if not better from New Zealand as from the US. Despite initial pressure to
move, relocation was not an option as far as GlobalBrain was concerned, and being
based in NZ was an advantage because of the quality of engineers.
At the time GlobalBrain signed the first purchase agreement with Snap,
they we were also working on a product for the corporate portal market. The
intention was to complement revenue from this market with the income from Snap.
In fear that GlobalBrain would loose focus on what they were doing for them,
Snap made an offer to buy the company out 100%.
“A lot of thought went into the decision about being purchased by NBCi
(previously Snap). If we were going to get into the corporate portal market we
would have had to build out a sales and marketing team in the US and raise
money to do this. No one on our team had experience doing this and we were
essentially an engineering team that would fit very nicely into NBCi. The staff
here also seemed comfortable with the idea, which was important,” said Ryan.
“When we found out the price NBCi was offering it was a no brain
decision. The exhilaration of putting that deal together was quite
extraordinary. Yes we did get swept up in the hype. But it was so much
fun. I remember walking out of the
meeting and almost bursting how happy I was about deal we had pulled off. It
was so hard to keep a straight face in the meeting, as it was all so
unbelievable.”
GlobalBrain
sold the remaining 90% to NBCi in June last year. Their phones rang hot as
everyone wanted to hear how they managed to pull-off a feat most New Zealanders
and Americans would not have thought possible. Heralded the son of a chicken
farmer who wangled a multi-million US dollar deal, Ryan struck awe, admiration
and a bit of jealously in everyone.
The
company started hiring again and moved into offices three times the size to
accommodate for the influx of staff. But it was too good to be true. “Our
technology was working and we had a great team but we were swimming against one
of the most dramatic market collapses possible. What happened shortly
afterwards was ugly to say the least,” he said.
NBCi’s
acquisition of GlobalBrain was considered the one of the most significant
technology deals to come out of this country. The 20-month old company with 15
employees was presented an all-stock transaction valued at signing to be worth
tens of millions of US dollars.
But
just as the deal was closed, the high tech stock market began to collapse. With
the demise of everything dot com, search engine companies in particular,
including NBCi, saw their net worth plummet at a world-record rate. In a matter
of weeks, shareholder-millionaires were devalued; their ideas and unsustainably
funded companies were suddenly denuded of theoretical wealth. NBCi’s share
value dwindled from $106 per share at its all time peak down to $2.14. The
average portal share drop was 97.6%.
“The logic of accepting an all-stock deal,” explained Ryan, “was that we
would distribute the stock to the shareholders and they could sell it when they
wanted. But when the price fell we were unable to do this because of the tax
consequences. Hindsight says we should have sold 30% as soon as we could. But
given our subsequent attempts to sell stock it would not have been very easy to
do this, so it is all academic anyway.”
He continued, “If we did not get bought by NBCi last year, there is no way we would have expanded and we would have struggled to stay afloat as an independent company. We would have needed to raise money to get into the markets we wanted to get into and it is unlikely we would have been able to generate sufficient revenue to sustain us. This would have been compounded by the fact that NBCi revenue would have dried up too.”
In summing up the situation, Ryan said, “It is obvious that stock is
nowhere near as good as cash but cash was not on offer. No one thought the
price would fall as much as it did - these things cannot be predicted or
expected.”
With
exhausted optimism NBCi was forced to close up shop. Broadcaster NBC, owned by
General Electric, bought back NBCi to prevent further significant loss and
erosion of NBCi’s value.
With
Jack Walsh on the board, everyone was convinced that NBCi (backed by GE) was an
attractive partner. NBCi and other portals reaped millions of dollars in
revenue from dot com companies wanting the portals to direct people to their
websites. As high margin revenue growth forecasts projected rosy futures, the
value of portal shares went through the roof. Trouble was, the forecasts were
based on dot com revenues that were raised by venture capital. Because this was
an unsustainable resource, the money of course dried up.
So
how was it that Yahoo survived and not NBCi? After all NBCi was the seventh
largest portal in the world and backed by the biggest company in the world. The
answer was that despite spending millions on advertising, NBCi couldn’t attract
new users. They blamed this fact on the television advertisements, claiming
they didn’t work very well.
Rick
Ellis, media analyst and CEO of AllyourTV.com, disagrees. He argued that NBCi
did not know what they were doing and couldn’t get it going because it was a
poorly executed idea. “Their site was a bunch of diffuse ideas … at one point
they were going to be a business portal for small companies, then they went
into entertainment with NBC … the advertising could have been great and still
no-one would have bought into it,” he said.
Others
say that NBCi got into the market too late. And that established portals like
Yahoo had already captured a loyal chunk of the market familiar with the site
and its services.
The
decision to wind the company up ended weeks of uncertainty. Healthy redundancy
packages and cash payouts of NBC shares have left no one of out pocket - just a
few million or several short of what was once ten of millions of theoretical
worth.
After
the turbulent ride on the NASDAQ bungy, you’d think Grant Ryan and co-founders
would call it a night and take a long and well-deserved break. Maybe, but not
yet. The pioneering team are working on a new plan. They aim to buy back the
technology that got them on the dot com road in the first place, and to
resurrect GlobalBrain. The asking price will be a fraction of what NBC paid for
it.
“In spite of what’s happened I wouldn’t have missed it for the world,”
said Dr Ryan. “It was a crazy time, but there were many rewards that came from
the experience. We learned a lot, we had fun, worked with great people and
we’re now in the position to have a go at something else.”
NBCi
NZ will be closing at the end of July and moving out of their cavernous
premises - originally planned to house 100 staff - in the BNZ building in
Cathedral Square.