Carphone Warehouse's recent decision to offer free broadband has "hit listed internet service providers (ISPs) hard", says Investors Chronicle. One notable exception is 121Media. It has developed a piece of software that sits on the server of an ISP and enables usage data to be collected and analysed "on the fly" for every one of its customers, says Citywire.co.uk.
The data then tells the system about each user's preferences (albeit anonymously) so they can be targeted with tailored advertising. This information is said to be so precise that the firm's business model will still be viable with users being sent only "two or three" advertisements per day, with the firm earning between $2 and $4 per user per month.
Hitherto, most ISPs "have tended not to serve adverts to their customers, who are already bombarded with ads on individual web pages". With broadband rates going through the floor, however, they are likely to have to rework their business plans to include some form of advertising revenue.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
121Media's technology is unique. It is currently loss-making, but if it can capture, say, half of the 70 million users it's targeting and make $3 per user per month then that will translate into annualised revenues of $1,260m. If it can earn a 2% margin on that revenue, that translates into earnings before interest and tax of $25.2m (£14m), which should easily be able to justify its current market value of around £32m.
Charles has previously written for the MoneyWeek, giving readers his share tips regularly and covering other topics on the side such as stock markets and the economy. He has also written for The Business, Shares, Investors Chronicle and The Evening Standard, and Charles has presented on LBC and been a guest on BBC One and BBC World. Aside from his journalist background, Charles graduated as a chemist from the University of Oxford specialising in ligand gated ion channels.
One-year savings accounts beat the Bank of England’s base rate - should you fix your cash?
Several savings providers have upped their one-year rates meaning you can now earn more than the bank rate for the first time in over a month. Is now a good time to fix?
By Vaishali Varu Published
How likely are Spring Budget tax cuts? What the economists say
Chancellor Jeremy Hunt is expected to announce some tax cuts in the Spring Budget. But analysts warn they may come at a price for the UK
By Henry Sandercock Published