An Investor’s Guide to the Online Brand Protection Market
Having been at the forefront of the Online Brand Protection business for more than fourteen years, pretty much since its inception, I feel well qualified to comment upon it. In the last couple of months, I have received an unprecedented number of requests for information and so I thought it might be helpful to put together a basic guide to the market, some of its dynamics and the characteristics to look for in a business providing solutions in the space.
Why is this sector of interest?
Although it is not a huge addressable market (best estimates are in the region of $750m-$1Bn globally), in a world where consumers are going online at an ever-increasing rate, it is self-evident that companies of all sizes will experience an increased contribution to their bottom line from their digital presence. The pandemic has only accelerated this, with bricks and mortar stores closed or considered an exposure to infection, live sports and movie theatres currently inaccessible (a recent study suggested around half of US consumers are currently carrying out 75% more of their shopping online than a year ago)
Given this, anything that damages that digital footprint, from typo-squatting and counterfeit marketplace listings to online fraud and illegal streaming of movies and sports, has an increasingly direct impact on companies’ financial results.
Solution providers that can remedy this, therefore, should have a very attractive future.
Market Dynamics
This has been a fascinating market to follow - I reviewed it’s history and trends in a prior article (http://www.charlieabrahams.world/articles.html) but essentially it grew rapidly from 2010, led by dominant players MarkMonitor and NetNames. who both then underwent changes in ownership whilst increased sector demand created opportunities for new entrants such as Yellow Brand Protection, Pointer BP, Red Points, Incopro and countless smaller players all of whom were focused on rapid growth and market share acquisition.
These new providers created significant competition in the market which reduced Actual Selling Prices (ASP) over the following few years. Together with a requirement for heavy technology investment and a large service component to the solution this has meant that it is actually a challenging space in which to generate profit and positive cash flow.
Most recently, both Yellow and Pointer were acquired by Corsearch, a trademark monitoring vendor while Red Points and Incopro each raised significant funding to fuel their expansion, so it is not surprising that investment companies and their advisors are hungry for information on the sector and its likely direction.
Further M&A activity is almost certainly guaranteed.
Challenges for vendors
The number one issue for providers in this space has been meeting customer needs at a price they are willing to pay – the internet is a big place, so scanning it for infringements of a broad nature and remedying them (with all the concomitant liabilities) is a costly process that almost inevitably requires some degree of manual intervention.
Also, it is impossible to eliminate 100% of infringements so what is in fact delivered is some degree of mitigation to brand harm/revenue loss rather than a complete fix. Clients can also fatigue of what they sometimes call “whackamole” (the removal of one listing/site only to be replaced by another) thereby impacting the value attributed to the service.
There are also significant technical obstacles to be overcome - the sites that need to be scanned (global marketplaces such as eBay, Amazon and Alibaba and social media platforms Facebook, Twitter, etc) are not always keen to have their sites crawled by bots and also continually change their shape and structure for their own marketing reasons. This means that the level of technical effort required just to keep up is both significant and unrelenting.
The net of all of this for potential investors in the space is that they need to look closely at a vendor’s path to long term profitability, as this is not an easy environment in which to achieve it.
Key Performance Indicators
In evaluating a target company in this space, there are a number of KPI’s that should be considered :
Revenue growth – this is a high growth market, so double-digit revenue expansion or better is essential just to maintain market share.
Retention – this is essentially a SAAS business and, as such, should be aiming at above 90% renewal rates or else the impact on growth will be significant. Changing Brand Protection provider is not a particularly lengthy process nor onerous on the client, so it is hard for providers to achieve “stickiness” other than with exemplary customer service and satisfaction.
Technology/Service contribution to revenue – Many OBP vendors are still carrying out much of the work using human capital rather than technology. If the service element is a substantial part of revenue (say above 25%), it is hard to scale the business successfully and profitably - it will just require too large a services team with resultant pressure on hiring, language coverage and supporting infrastructure.
Gross Profit – the business should either be profitable today or there must exist a credible route to profitability within a foreseeable timescale.
Customer portfolio – this is not a metric per se, but some assessment of the customer base needs to be made : are they large scale or small scale organisations, how polarised is the revenue (ie do 10% of contracts represent a large percentage of Dollars received), how willing to participate in marketing activities are they and, most importantly, what is their level of satisfaction ?
Strategic Options
There are a number of potential routes to success that have been or can be attempted :
Combination with adjacent solutions
When MarkMonitor was acquired by Thomson Reuters in 2012, the essential premise was that combining Trademark Screening and Watch solutions with Online Brand Protection would offer synergies and a broader holistic value proposition.
Whilst this did deliver a degree of success, there are some flaws in the concept – Trademark services are largely sold via law firms and almost always to IP legal departments at the end user. Brand Protection has never been successfully distributed via the law firm channel (for a whole set of reasons for which there is not space in this article) and the end user buyer may be Legal but has increasingly become eCommerce, Digital Marketing, Technology departments and the C suite. The fact that the MarkMonitor Brand Protection business was subsequently divested to Opsec Security in 2020 probably tells its own story.
Corsearch has essentially mimicked this strategy with the acquisition of Yellow, Pointer BP and Marketly to combine with its trademark business. Only time will tell how effective that may be.
Specialisation
In any sector, there are always specialists that will thrive in a niche part of the business. Within Online Brand Protection, there are several highly successful businesses that have established themselves in specific areas – PhishLabs in phishing and fraud detection, XCyber in electronic investigation and disruption, Friend MTS in live streaming content protection.
The other side of this coin is that they are essentially limited in terms of scale by the size of the niche they inhabit, but they may very well be able to have a successful and growing business within their defined space. Whether that meets specific investor needs would be subject to closer review.
Bifurcation of the target customer set
Within Online Brand Protection there may well be two markets : the most infringed organisations who require a very extensive and rapidly evolving solution set - this is almost certainly a custom services engagement with associated high costs of delivery and then the smaller businesses with a single brand they wish to protect across a limited number of vectors (eg. eBay locales, Amazon and some popular Asian platforms).
The latter could be delivered with a high degree of automation given the right technology, and so be offered at an affordable price and still be profitable for the vendor.
The test for a vendor following this path would be to rigorously limit itself to one of the two propositions or to ruthlessly manage the two offerings in a differentiated manner.
Summary
This is an exciting and dynamic sector which passes the acid test of addressing an unfulfilled need and one for which demand will only increase over time. It should, therefore, offer significant returns for investors but the history of the space suggests that solving the customer problem effectively and with compelling value requires great technology and a strategy for real differentiation.
The above has been intended as a high-level introduction to the topic but there is a lot more thinking available especially around specific vendors and go to market options. Please visit www.charlieabrahams.world or email me via CA@charlieabrahams.world for further assistance