GP Bullhound Turkish Internet Report

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Turkish internet report created by GP Bullhound. Published on Webrazzi: http://www.webrazzi.com/2013/04/12/turkiye-internet-raporu-gpbullhound/

Turkish internet report created by GP Bullhound. Published on Webrazzi: http://www.webrazzi.com/2013/04/12/turkiye-internet-raporu-gpbullhound/

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  • 1. INDEPENDENT TECHNOLOGY RESEARCH SECTOR INITIATION  APRIL 2013  DIGITAL MEDIATURKISH COFFEE – GET IT WHILE IT’S BREWINGIn times of global financial flux and uncertainty, a highly dynamic new marketis evolving for financial and strategic investors looking for the next opportunity:Turkey. This report provides comprehensive and in-depth insight into the fastgrowing Internet and Digital Media markets in Turkey.A number of factors are converging in Turkey — favorable demographics(young, prospering and engaged), a developing risk-capital ecosystem, areverse brain transfer (Turkish talent returning home from abroad),widespread mobile penetration, emerging Internet ecosystem and maturingeCommerce sector, stable government, strong online and offline consumptionhabits and more, making Turkey one of the most anticipated markets in theworld.The promise demonstrated by evolving sector dynamics and vastly changingentrepreneurial conditions led last year to considerable hype with regards toinvesting in Turkey. This enthusiasm in turn boosted a perception somewhatin advance of reality, stimulating premature expectations.Now it’s time, for all concerned to come back to Earth. Particularly in regard tothe eCommerce sector, and the hard work called for may be more mundanethan the glittering fanfare. Survival of the fittest is eliminating lagging playersand strengthening the entrepreneurial ecosystem. The young market is in factmaturing, and early investors now have the kind of opportunity that comesaround only when a particular constellation of conditions prevail.This report acknowledges and provides context for short-term cautionassociated with emerging markets such as this. However, the overall findingssuggest substantial potential in the mid to long-term for the Turkish Internet ALI DAGLI ali.dagli@gpbullhound.commarket to be a new growth region for entrepreneurs and investors alike. US: +1 415 412 2015 Turkey : +90 532 245 7505 DANIEL MAGGS daniel.maggs@gpbullhound.com London: +44 207 101 7660 Important disclosures appear at the back of this report GP Bullhound LLP is authorised and regulated by the Financial Conduct Authority in the UK GP Bullhound Inc. is regulated by the Financial Industry Regulatory Authority (“FINRA”)
  • 2. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING TABLE OF CONTENTS Market Overview ......................................................................................................................2 Turkey in Context ....................................................................................................................4 SWOT Analysis ........................................................................................................................5 Emerging Internet Ecosystem in Turkey ...............................................................................5 Private Capital Environment ..................................................................................................7 Digital Media Landscape ........................................................................................................8 Hot Topics................................................................................................................................9 Three Paths to Success ....................................................................................9 Leadership Position and More Innovation .........................................................9 “Copy Now” and “Sell Fast” Does Not Work ......................................................9 Chicken-and-Egg Paradox ..............................................................................10 Undue Focus on User/Revenue Growth ..........................................................10 Appointing Additional Leadership When Needed ............................................11 One-way Ticket Back Home ............................................................................11 Selected Sector Overviews ..................................................................................................12 eCommerce .....................................................................................................12 Gaming ............................................................................................................17 Digital Agencies, Online Advertising and Marketing ........................................22 Social Media and Online Content ....................................................................25 Selected Private Placements................................................................................................ 30 Selected M&A Transactions .................................................................................................32 Facebook and Mobile Internet Rankings.............................................................................33 Company Tree Diagrams by Sector .....................................................................................351 GP Bullhound LLP
  • 3. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Market Overview Turkey is a country where East and West have always met, diverse cultures co-exist, and a dynamic young population is expanding. A quarter of Turkeys 75m people are less than 15 years old, growing up in the world of Facebook, Twitter, and mobile Internet, and promising a stronger future for the Turkish economy and its emerging Internet and Digital Media sectors. th th Turkey is the worlds 15 , and Europes 6 , biggest economy by GDP. According to the Organization for Economic Co-operation and Development, Turkey is expected to overtake India as the world’s second fastest growing economy by 2017. EXHIBIT 1: TURKISH GDP, 2001-2013 $1,200bn $1,000bn $912bn $841bn $800bn $600bn $400bn $200bn $0bn 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012E 2013E Source: The World Bank Since the Turkish economic crisis of 2001 and the reforms initiated by Kemal Dervis, the Minister of Economic Affairs and the Treasury at the time, inflation has fallen from 18.4% in 2003 to around 7.4% (expected) in 2012, and unemployment has fallen from 13.3% in April 2009 to 9.2% in 2012 — the lowest level since 2005. Although the budget deficit and foreign debt remain cause for concern, in November 2012 rating agency Fitch raised Turkey’s credit rating to investment grade as a vote of confidence in Turkish officials’ efforts to transition the country towards a more self-sustaining, export-driven economy. There is an exponentially developing appetite for digital media consumption in Turkey. Use of IP-based platforms such as web, social networks, and mobile Internet is growing at an unprecedented pace. 36.5m Turks are Internet users — the fifth largest digital population in Europe after Germany, UK, Russia and France, and with more room for growth. Broadband Internet subscriptions have grown 38% year-on-year to 19.3m in 2012. EXHIBIT 2: INTERNET BROADBAND PENETRATION IN TURKEY 30 30% 25.8% 25 25% 19.3 20 20% 14 15 15% 8.6 10 5.9 6.8 10% 5 5% 0 0% 2008A 2009A 2010A 2011A Q3 2012E No. of Broadband Users (m) Penetration as % of Population Source: IMF, The World Bank Mobile penetration is high at 90% with 67m users. Turkcell, Vodafone, and Avea are the dominant carriers with 52%, 28%, and 20% market shares respectively. 60% of mobile users are currently on 3G data plans. According to Flurry, Turkey is one of the top ten fastest growing iOS and Android markets at 185% year-on-year growth. 71% of mobile subscribers2 GP Bullhound LLP
  • 4. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING connect to the Internet via mobile phone at least once a day. Every major eCommerce and Digital Media — and even traditional — company in Turkey is releasing new mobile initiatives and experiencing significant upside from this rapidly growing medium. EXHIBIT 3: MOBILE IS BECOMING MOBILE INTERNET – 3G SUBSCRIBER GROW TH 100 94% 90 92% 92% 80 90% 88% 89% 90% 70 87% 89% 85% 60 88% 28.5 26.9 50 33.9 30.8 42.4 86% 40 65.8 55.7 30 84% 20 37.7 40.3 31.4 34.9 82% 10 19.4 7.1 0 80% 2008 2009 2010 2011 Q1 2012 Q2 2012 Q3 2012 No. of 2G Subscribers (m) No. of 3G Subscribers (m) Mobile Penetration (%) Source: www.tk.gov.tr People in Turkey are extremely digitally engaged and social, evident on the ground and in the statistics. Turkish people spend the third-longest time online in Europe after the Netherlands and the UK, and with 32.4m Facebook users — 89% of all Internet users and 43% of the total population — Turkey is ranked the seventh largest country on Facebook. With 9m users and rapidly growing, Turkey is also becoming one of the largest Twitter-using countries. Just recently, leading mobile operator Turkcell and Twitter reached an agreement to better integrate Twitter into Turkcell’s mobile phone architecture. Turkeys overall infrastructure is well developed. Credit-card penetration, at some 60%, is higher than the European average of 50%. And, relative to for example Russia, logistics and physical infrastructure are good. Thanks to heavy investment, communication links are strong. The third-generation network, at least in major urban areas, is often faster than that found in many other European countries. Available data indicates that Turkey’s economic environment is, and appears likely to remain, strong; likewise the political environment is, and appears likely to remain, stable. With more "profit-focused" execution, innovation, and smart money/investors feeding into Turkey, these positive digital media trends are on track to continue for years to come.3 GP Bullhound LLP
  • 5. TURKEY RUSSIA ISRAEL FINLAND SWEDEN BRAZIL UK US Population and Area Population 75.6m 143.4m 7.9m 5.4m 9.6m 193.3m 63.2m 315.6m Population Density 97/km2 8/km2 360/km2 18/km2 23/km2 23/km2 255.6/km2 34/km2GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Area 783,562/km2 17,075,400/km2 22,145/km2 303,893/km2 410,314/km2 8,514,877/km2 243,610/km2 9,161,074/km2 Largest Cities  Istanbul (13.3m)  Moscow (11.5m)  Jerusalem (0.8m)  Helsinki (0.6m)  Stockholm (1.3m)  S’Paulo (11.2m)  London (9.5m)  NY (8.2m)  Ankara (4.3m)  St. P’burg (4.8m)  Tel Aviv (0.4m)  Tampere (0.2m)  Goth’burg (0.5m)  Rio de J. (6.3m)  B’ham (2.4m)  LA (3.8m)  Izmir (2.8m)  Nov’birsk (1.5m)  Haifa (0.3m)  Turku (0.2m)  Malmӧ (0.3m)  Salvador (2.7m)  M’chester (1.9m)  Chicago (2.7m) Economic Indicators (2011 Actuals, IMF) GDP (PPP) $1,260bn $3,015bn $216bn $202bn $392bn $2,289bn $2,234bn $14,991bn GP Bullhound LLP GDP Growth 8.5% 4.3% 4.6% 2.7% 3.9% 2.7% 0.8% 1.8% Inflation Rate 6.5% 8.4% 3.5% 3.3% 2.9% 6.6% 4.5% 3.1% Unemployment Rate 9.8% 6.5% 7.1% 7.8% 7.5% 5.9% 8.0% 8.9% Users and Infrastructure Internet Users* 36.5m (48%) 70.6m (49%) 5.4m (68%) 4.8m (89%) 8.7m (91%) 87.3m (45%) 51.6m (82%) 245.5m (78%) 3G Penetration** 20% 8% n.a. n.a. 73% 41% 53% 64% Credit Card Penetration* 60% (45.4m) 5% (7.2m) n.a. n.a. n.a. 21% (40.6m) n.a. 33% (104.0m) Social Media Facebook Users*** 32.4m (89%) 7.7m (11%) 3.8m (70%) 2.3m (48%) 4.9m (56%) 65.2m (75%) 32.8m (64%) 167.4m (68%) Twitter Users*** 9.0m (25%) 5.0m (7.1%) 0.1m (1.9%) 0.3m (6.3%) 0.3m (3.4%) 41.2m (47%) 10.0m (19%) 59.0m (24%) Sample Success Stories Turkey in Context Joygame vKontakte Blocket.se Marcadolivre Rightmove Gilt Groupe Local Successes - - Markafoni Yandex Klarna Submarino Moneysupermarket Uber Shopping.com Rovio Spotify Betfair Google Global Successes - Kaspersky Terra Waze Supercell Skype King.com Facebook No. US-based Companies on 2 4 64 1 3 28 39 n/a NASDAQ, NYSE and Amex Sources: The World Bank, IMF, Capgemini, Socialbakers, Wired, Webrazzi, Beantin, Arabsocialmediareport.com, Semiocast Research VISA, KPCB, * As % of total population ** As % of mobile subscribers *** As % of Internet users 4
  • 6. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING SWOT Analysis EXHIBIT 4: SW OT ANALYSIS Strengths Opportunities  Strong macro trends and growing economy  Exponentially growing appetite for digital media  Young, educated and engaged population  Pressing move in 2013 towards more  Large Internet user base w/ room for growth innovative and profitable businesses  90%+ mobile penetration  Money-spend online to catch up with time-  Robust logistics, payments and Internet spend online (consumers and advertisers) infrastructure  Massive growth trajectory in smartphone and  Entrepreneurial energy and quick problem- broadband penetration solving capability  Foreign investors looking to invest in Turkey  Hard-working and low-cost labor force  Investment incentives from government  East/West geographical and cultural magnet  Affluent professionals coming back home Weaknesses Threats  R  Young Internet ecosystem  Immature business models failing with  Lack of private capital, small set of smart potential chilling effect on new investment institutional investors  Domestic challenges to modernization  Insufficient innovation  Internet censorship by government agencies  Unbalanced activity in eCommerce versus  Unstable conditions in nearby countries other digital media segments  Undue focus on revenue growth  Dependence on Google user acquisition  Lack of non-founding employee incentives and stock options Source: GP Bullhound Emerging Internet Ecosystem in Turkey New Internet startups are being formed and large traditional corporations are announcing new online initiatives in Turkey virtually every day. Large conglomerates such as Dogan and Dogus have numerous Internet companies under their umbrellas (such as Amazon-like HepsiBurada and Hulu-like Tvyo). The spread of entrepreneurship in Turkey is taking place not just at the corporate level, but at the startup level as well. Many Turkish professionals have embraced the Internet as the forward-looking direction for growth. There is tremendous energy behind a push to create what might one day become the Silicon Valley of Anatolia. Entrepreneurship and Internet studies are being taught in every major university across Turkey, and entrepreneurs and sector experts frequently attend panel discussions and give lectures to stimulate debate and initiative. Arda Kutsal and his team at the very popular Turkish tech portal Webrazzi are playing a major role in cultivating the Silicon Valley paradigm in Turkey — by updating Turkish entrepreneurs on a daily basis as to what’s going on in California, and how to emulate or localize these dynamic developments in Turkey. Burak Buyukdemir has done an outstanding job of mentoring and incubating up-and-coming entrepreneurs through his incubation platform eTohum. In fact, there are growing numbers of incubators and accelerators (Fit Startup Factory, Dunya Invest, Inventram, among others). The Turkish arm of Endeavor, which offers strategic advice, mentorship and global contacts to promising startups, is working hard to help mature the entrepreneurial ecosystem. The quality of advice available from some of the local counsels — such as Sidika Baysal Hatipoglu of B+B or Enver Sezer Caliskan of Caliskan & Kizilyel — compares favorably to that which one would get from seasoned professionals at Wilson Sonsini or Fenwick in Silicon Valley.5 GP Bullhound LLP
  • 7. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING The Turkish government, recognizing these new developments as vital for boosting the accelerated growth Turkey has been experiencing in recent years, has been initiating a host of policies — legal and fiscal measures and infrastructure projects — to attract entrepreneurial activity and job seekers to the Internet sector. Especially helpful for growing startups is "Government R&D company status" incentivizing them to rent offices in numerous tax-exempt ‘technoparks’ located on university campuses throughout the country. Such government support is aimed at overcoming some of the known liabilities inherited from the past, creating a friendly, proactive and robust environment for new businesses. Despite all these positive trends, the Turkish Internet ecosystem is still young and inexperienced in regard to the mores and skill sets of Silicon Valley. The older generation is still bound by tradition and this can hamper younger players from developing and deploying the entrepreneurial spirit to which Silicon Valley is accustomed. Cronyism, lack of vision, fear of failure, insufficient skill in planning and cooperation are formidable deterrents. At times, new business leaders can be impatient and naïve, underestimating what it takes to grow a sustainable enterprise. There is a lack of institutional private funding, and existing local investors want too much control, being unwilling to allow entrepreneurs to chart untried trajectories. This results in a lack of innovation, premature abandonment of good ideas, and inadequate financial incentives. Of course, all these shortcomings are natural part of continued growth and development. And as the country’s new business leaders demonstrate that they are finding their feet in this newly developing arena, Internet entrepreneurship in Turkey is increasingly acquiring a distinctive flavor, both local and global, creating a new and as yet untapped sphere of opportunity for investors.6 GP Bullhound LLP
  • 8. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Private Capital Environment To date, the Turkish private capital environment has been largely dominated by local investors and a small set of outside investors. Many of these are angel investors in the form of successful entrepreneurs such as Emre Kurttepeli, founder of leading Internet portal Mynet, Hasan Aslanoba, CEO of Aslanoba, and Tolga Tatari, Ahmet Emre Sari, and Sina Afra, co-founders of eCommerce giant Markafoni. Turkish angels have generally invested in rounds of up to $1m so far, although in some cases they have joined larger rounds alongside non-angel investors. We see significant deal activity from a number of key local digital media investors. 212 and iLab in particular have been highly active and have played a key role in building awareness of and confidence in the Turkish tech scene. 212 is the largest early-stage VC fund dedicated to making investments in Internet and technology companies in Turkey, investing in a broad range of verticals including social gaming, eCommerce, cloud services and social media. iLab is unique in being both an investor and incubator, and focuses primarily on the classifieds, comparison, e-commerce and content categories – all proven models and highly scalable businesses. Founded in 2000, iLab is an icon of the Turkish tech scene - it has holdings in 12 businesses with a combined total of over 700 employees, more than 400m page views, 24m users, 6m unique monthly visitors, and a reach of 25% of the Turkish Internet market. iLab invested in GittiGidiyor in 2006 and still owns a minority stake. Generally speaking, the serious money has been provided by a small set of international investors, with the largest raises to date coming from General Atlantic ($44m for Yemek Sepeti, together with Endeavor Global) and Tiger Global Management (large stakes in Mynet and Trendyol). Hummingbird and Earlybird have also made multiple investments. As global investors get comfortable with the idea of investing in Turkey, we expect foreign capital inflows to increase significantly. EXHIBIT 5: SELECTED VC FIRMS W ITH TURKISH INTERNET INVESTMENTS Investor Key Investments Source: CapitalIQ, Webrazzi, GP Bullhound7 GP Bullhound LLP
  • 9. eCommerce Advertising Content Gaming eTailers & Social Media Private Shopping Digital Creative Agencies Console Gaming Marketplaces MMO Group Buying & Price Internet-Only Media Companies Daily Deals Comparison Web / DownloadGP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Brand and Brand and Performance Ads Performance Vertical eCommerce - Sellside Ads - Buyside Traditional News Outlets Social Network Gaming GP Bullhound LLP Online Video & Music Mobile Gaming Video Ad Networks Licensed Betting Online Dating Mobile eMail Marketing Marketing 3rd Party Services Digital Media Landscape Vertical Content Enabling Technologies Online Video Classifieds, Yellow Pages, and HR Payments Mobile Internet 8
  • 10. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Hot Topics Three Paths to Success For an emerging country such as Turkey, we see three major routes to entrepreneurial success. The first is to clone existing products/services that are already successful in developed markets, but need a lot of work to flower in new territory. To date this has been a common strategy for many Turkish entrepreneurs, and has been highly profitable for first- movers such as eBay-clone Gittigidiyor and Gilt-clone Markafoni. The second route is to create a unique or differentiated product/service for the local market only — in this case, offerings with specific appeal to the Turkish population. Peak Gaming’s flagship title Okey, for instance, has created unique appeal for Turkish gamers by successfully porting the tea house experience of playing tile games to the Internet. Players can also send each other topical gifts such as Turkish coffee, a nargila water pipe and even a belly dancer! The third and less well trodden route is to create a product/service with global appeal which can compete outside of Turkey as well as within it — here the most innovation is required. Already we see a number of success stories in the making. In mobile Internet games, for instance, we see promising, high-quality, products such as Picnic Hippos Bucketz, Duellos iSlash, and Fugos Wordz. Leadership Position and More Innovation Naturally, Turkish entrepreneurs and investors at first directed most of their attention and money into types of businesses with which they and consumers are most familiar and comfortable. That is, selling offline goods through online channels with a new make-up and social mechanics. Accordingly, the majority of Internet-based businesses in Turkey and MENA have been about selling offline goods online. And this has been fine, as a start. However, we have to keep in mind that by their nature online shopping businesses have relatively lower margins. In addition, low barriers to entry result in intense competition and additional margin pressure. This means that only companies in the leading position by a high margin and/or offering proprietary products will be embraced by consumers over the long term. Thus there are two ways to move forward in creating more local and global online success stories in Turkey. Either the leading players further ramp up to widen the margin between themselves and the competition, or entrepreneurs retool and come up with a wider range of innovative, diversified, differentiated, and disruptive businesses — both in eCommerce and other under-penetrated Internet sectors — that can in due course reach scale and profitability. In Turkey so far, Hepsiburada.com (online retailer), Sahibinden (online classifieds), Cicek Sepeti (online flower delivery), Yemek Sepeti (online food delivery), Mynet (online portal), Joygame (online gaming), Kariyer.net (online recruitment) have revenue scale and profitable growth. All these companies offer differentiated products and are distinguished leaders of their respective sectors. What is needed is more of them. “Copy Now” and “Sell Fast” Does Not Work Being inspired by and “cloning” a business that has been successful elsewhere can be a smart move for entrepreneurs, and may bring considerable success. And it may at first appear that this route is a shortcut compared with launching an enterprise that is brand new on the scene. This perception may, however, be deceptive. Whether it is cloning a winning business model or innovating from the ground up, local case studies support the common experience of excessive workloads before payback can be expected.9 GP Bullhound LLP
  • 11. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING In other words, successful and enduring companies are not built easily or overnight. When we look at the time span of some of the successful online businesses in Turkey, where there is both revenue scale and profitability (or a successful exit), this point becomes evident: EXHIBIT 6: SELECTED COMPANIES W ITH REVENUE SCALE AND PROFITABILITY 1998 2000 2002 2004 2006 2008 2010 2012 2013 LEGEND 7 years old Amazon Private Placement M&A (Exit) 6 years old Hummingbird Ventures iLab Ventures eBay $235m 13 years old eBay 15 years old $15m (50% stake) 4 years old CJ Games iLab Ventures iLab Ventures 14 years old 5 years old $7.2m Allegro Trayas (Naspers) Tiger Global 14 years old Management $2.5m 11 years old Intel Capital 13 years old European Founders $44m Fund Management General Atlantic 12 years old Endeavor Global Source: CapitalIQ, GP Bullhound Chicken-and-Egg Paradox Today, investors all over the world are looking for growth, but with developed countries in abeyance and many developing countries (such as Brazil and India) experiencing lower than anticipated growth, attractive opportunities without high risk are few and far between. In many respects, Turkey is becoming a standout place to look for high growth opportunities, and investors are now keen on investing in Turkey. However, many are sitting on the sidelines, waiting for more definitive signs. Optimistic and willing though they may be, they remain cautious. On the other hand, Turkish entrepreneurs require early-stage capital and seasoned investors backing them up to unlock the ecosystem’s underlying value, to maturate the nascent developments into the solid opportunities the investors are waiting for. Thus we have at the moment something of a chicken-and-egg paradox, awaiting bold moves on the part of frontrunner investors to break into a new and profitable arena. Undue Focus on User/Revenue Growth As commonly experienced in the western European and Silicon Valley start-up community, we see many examples in Turkey where Turkish entrepreneurs focus on customer acquisition and revenue growth as markers of success. However, this mentality can prove to be short- sighted. Investors, on the other hand, anticipating changes wrought by maturity, need to see not just revenue growth but a path to profitability.10 GP Bullhound LLP
  • 12. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING For example, for long-term value, Turkish e-commerce entrepreneurs need to look beyond simply acquiring large numbers of users, instead focusing on the lifetime value of customers, conversion rates, user royalty, and organic channels of customer acquisition and other key performance indicators. Emre Aydin, founder and CEO of Cicek Sepeti, has successfully demonstrated this by a relentless focus on analyzing customer data and leveraging it to make operational enhancements, as well as ongoing product innovation. And the result is clear — over the years, Cicek Sepeti has enjoyed strong revenue growth with unprecedented EBITDA margins of around 20%, delivering flowers online, in many respects, better than its global counterparts. Appointing Additional Leadership When Needed It is very common, both in Turkey and globally, for founders of Internet companies to be wearing lots of hats. Although these talented leaders have had what it takes to get their enterprises off the ground to considerable acclaim, Turkish entrepreneurs sometimes underestimate the need to delegate authority and to widen the talent pool by bringing in professional personnel with additive experience and complementary responsibilities. Such limitation can prove to be damaging. Not only does it constrain the scope of realizable potential for the enterprise, but the leader may be blindsided by the success they’ve enjoyed, becoming overwhelmed and spending a lot of their time where they are not needed or as valuable. It was a smart decision, when Burak Balik, the founder of the highly successful online gaming company Joygame, brought in Baris Ozistek as CEO in March 2011, two years after the company’s founding. Today Burak is leading the product teams, game selection and on-going platform innovation with Baris leading day-to-day execution and dealing with the corporate development needs of the business. We expect this leadership to continue to translate to exciting milestones for Joygame that the Turkish ecosystem as a whole can be proud of — Korean entertainment and media company CJ E&M recently acquired 50% of Joygame for $15m. Another great example of successful additional leader appointment is in the case of Sina Afra joining Tolga Tatari and Ahmet Sari in order to bring organizational experience and discipline to the initial Markafoni team. The three leaders truly complemented each other with their respective roles and turned Markafoni into the great success story it has become. Naspers acquired 66% of Markafoni in 2011 and continues to back Markafoni with their new initiatives. The collective goal is to turn Markafoni into a billion dollar company and have an IPO in a few years. One-way Ticket Back Home A fairly recent phenomenon of significance for the tech sector in Turkey is the accelerating “reverse brain transfer,” whereby Turkish professionals who have been studying and working abroad are returning home to seek newly emerging opportunities. The tech sector has been a major beneficiary of this trend. For example, after 17 successful years in the US — having sold SelectMinds to Oracle — entrepreneur Cem Sertoglu returned home in 2006 and became one of the early pioneers of the (then non-existent) VC community. Two companies Sertoglu invested in — Gittigidiyor and Grupanya — have already enjoyed exits. In addition, well-regarded sector executives such as Hakan Bas of Lidyana, Rina Onur of Peak Games, and Demet Mutlu of Trendyol studied in leading US universities and returned home after a few years of investment banking experience to participate in this rapidly growing sector. In another manifestation of coming back home, there are numerous Turkish executives working abroad for US-based enterprises being asked by their companies to return to Turkey to lead their operations in the region. Just recently, Baris Aksoy was asked by Intel Capital to relocate from Silicon Valley to head their new offices in Istanbul.11 GP Bullhound LLP
  • 13. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Selected Sector Overviews eCommerce eCommerce is arguably the sector in the Turkish digital media landscape which has attracted the most attention and investment. The combination of a young and affluent demographic, rapid economic growth, developed infrastructure and strong Internet, mobile and credit card penetration has created fertile ground for eCommerce players to thrive. As penetration has risen, the value of domestic eCommerce transactions has dramatically increased, from around $3.1bn in 2007 to over $17bn in 2012, representing a 41% CAGR. Likewise, the volume of such transactions has surged from 54m in 2007 to 162m in 2012, a 24.5% CAGR. Even in 2012, when other sectors slowed down, domestic eCommerce spending rose by 34%, and volumes by 29%. EXHIBIT 7: VOLUME AND VALUE OF DOMESTIC ECOMMERCE TRANSACTIONS 25 162.0 180 160 20 125.9 17.3 140 120 15 91.9 12.9 100 64.6 66.5 80 10 54.1 8.6 5.8 60 5.1 5 3.1 40 20 0 0 2007A 2008A 2009A 2010A 2011A 2012A Transaction Value ($bn) Transaction Volume (m) Source: Interbank Card Center, xe.com, GP Bullhound Turkish people are spending more online not only in aggregate terms, but also per transaction – average basket sizes have grown 13.1% in 2012 alone. Turkey already has around 10m online shoppers. Assuming Turkish Internet penetration will continue towards EU averages, this number should reach around 16m by 2016. EXHIBIT 8: AVERAGE DOMESTIC ECOMMERCE TRANSACTION VALUES ($) 102.7 107.0 93.6 87.3 79.6 57.8 2007A 2008A 2009A 2010A 2011A 2012A Source: Interbank Card Center, xe.com, GP Bullhound Investor interest in Turkish eCommerce has been heightened by a series of landmark transactions which took place in 2011. First, eBay acquired 83% of Turkey’s largest auction site GittiGidiyor, in a deal rumoured to value the company at $215m. Then South African media conglomerate Naspers acquired 70% of Markafoni, one of Turkey’s largest private shopping companies, in a deal valuing it12 GP Bullhound LLP
  • 14. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING around $200m. Lastly, Amazon invested in leading online flower store Ciceksepeti. Since then, Turkish fundraising activity has been dominated by e-commerce plays as investors seek to tap the sector’s long-term growth potential (see Selected M&A Transactions and Private Placements on pages 30-32 for details). At the same time, the sector faces a number of challenges. The success of and hype surrounding leading companies such as Markafoni, Yemek Sepeti, Grupfoni and Lidyana has spawned numerous imitations, creating intense competition for market share and driving down (already low) gross margins for the market as a whole. There are hundreds of small-scale firms in each eCommerce segment, but many lack distinctive sustainable business models and are too small to attract investment. That said, the overall long-term picture is still one of considerable optimism. Turkish per capita income currently stands at c. $10,000, and is projected to reach $60,000 by 2050. GDP growth will further the infrastructure investment needed to bring increasing numbers of Turks online. High mobile penetration will go a long way to overcoming current infrastructure issues. In addition, the ongoing and anticipated demise of large numbers of companies will bring maturity to the Turkish eCommerce sector. Entrepreneurs and investors will need to have a more considered and disciplined approach, and will need to focus more on product differentiation, sustainability, unit level economics, and paths to profitability along with revenue growth. With eCommerce penetration standing at around 0.6% of retail sales, the sector is still in its infancy with a long and profitable way to catch up with the consumption levels of already mature European counterparts. EXHIBIT 9: E-COMMERCE SHARE OF RETAIL SALES (2011, NON-TRAVEL) 10.7% 8.0% 7.4% 7.0% 6.8% 6.0% 5.8% 4.3% 3.3% 3.0% 2.5% 0.6% Source: Center for Retail Research General eTailers and Horizontal Marketplaces Leading general business-to-consumer eTailers serving Turkish customers, such as Dogan Group’s Hepsiburada and Amazon, work with large numbers of merchants and sell hundreds of thousands of products across a broad range of categories. Founded in 1998, hepsiburada.com is the largest eCommerce site in Turkey with over 6m monthly unique visitors, 900,000 monthly purchases and annual revenues of over $300m. The Company offers 350 SKUs in 32 categories and employs 250 employees. Although much smaller, Sabanci Group’s Kliksa and Hurriyet’s newcomer Yenicarsim are other prominent players in this segment. Horizontal marketplaces act as virtual bazaars that bring together merchants, small businesses, and individuals to trade almost anything. Sahibinden is currently the leading marketplace and classifieds destination in Turkey, with over 13m monthly unique visitors. It claims over 3m listings at any one time and around 50,000 new listings a day. eBay’s GittiGidiyor is currently second in the space with over 6m monthly unique visitors. eBay’s 2011 acquisition of GittiGidiyor remains the largest Internet acquisition in Turkey, with a deal value of $217m.13 GP Bullhound LLP
  • 15. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Online Private Shopping Online private shopping clubs offer an environment that hosts sales of designer brands for members at deep discounts. They often encourage members to introduce friends in their online social networks with additional savings and offers. UK-based Vente Privee offered this model to online customers for the first time in 2001 and remains one of the most valuable private companies in the world, with revenues in 2011 of $773m and valuations estimated between two to three billion dollars. Gilt Groupe, the first to bring the luxury sample sale to the US online market when launched in 2007, has also experienced extraordinary growth. Realizing this massive opportunity, Turks were fast to follow, with private shopping clubs Markafoni and Trendyol launching in 2008 and 2009, respectively. Other sizable (and somewhat challenged) players are Limango, Vipdükkan, Morhippo, and 1v1y.com. Group Buying and Daily Deals Group buying sites offer products and services at significantly reduced prices providing that a minimum number of buyers purchase the same item. They are viral versions of traditional daily deal sites, bolstered by integration with Facebook and various social features. Huge consumer demand and hype for this segment was reflected in the creation of 150+ new players and a rash of deals in Turkey in 2011. That year, Intel invested in Grupanya, Quants Financial Services took a majority stake in Grupfoni, and betting site Bilyoner acquired Grupca. However, with intense competition, low barriers to entry, and questionable ROI, this market has been shrinking. Currently, Istanbul-based Grupanya and Chicago-based Groupon are the leading players in Turkey, with Yakala.co, Grupfoni, and Bonubon chasing after them. Price Comparison and Lead Generation Price comparison services allow individuals to see different lists of prices for specific products from large numbers of retailers. These sites typically do not charge users to use the service, but charge the retailers a flat fee or have them pay every time a user clicks through to the retailers’ product (CPC). Since price is a big value driver of eCommerce for Turkish consumers (in many instances versus convenience), price comparison sites are quite popular. The price comparison sites with the most traffic are Akakce, Ucuzu, and iLab’s Cimri. Vertical eCommerce Companies In Turkey, 2010 was the year of private shopping, 2011 was all about group buying sites, and in 2012 vertical eTailers and Marketplaces grabbed most of the attention. These are destinations where consumers go to buy products or services in a specific vertical, varying from cars, consumer electronics, cosmetics, accessories, baby products, and home decoration. Certain verticals, such as food and flowers, already have their well-established leaders. Yemeksepeti, founded in 2001, and Ciceksepeti, founded in 2006, have done an excellent job of executing their business plans and attracting high quality investors such as General Atlantic, Amazon, and Hummingbird. Benefiting from the company’s strong and influential investor and celebrity network, Lidyana is emerging as the leading player in the accessories market. There is both huge growth and intense competition going after the “golden mom” in the baby and home decoration verticals. The travel vertical is still largely owned by offline players, and there is huge room for growth online. Vertical eCommerce in Turkey has had some consolidation — Dogan’s acquisition of Evmanya and Pera Bulvari buying WestWing — but has yet to see large M&A transactions. The investment landscape, on the other hand, has been very active as investors have started to follow companies that identify a niche and become proficient in catering to it.14 GP Bullhound LLP
  • 16. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING EXHIBIT 10: LEADING TURKISH VERTICAL ECOMMERCE COMPANIES Vertical Leading Player(s) Selected Investor(s) Accessories and Jewellery Automotive Books Conservative Fashion Consumer Electronics Cosmetics Flowers and Gifts Food Home Decoration Mother and Baby Personalised Fashion Shoes Travel Bookings Rentals Local Events Source: GP Bullhound15 GP Bullhound LLP
  • 17. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Payments The Turkish payments industry has benefited greatly from the eCommerce boom of the last few years. As we discussed at the outset, Turkey’s continued GDP growth, 60% credit card and near 50% Internet penetration generated 162m eCommerce transactions in 2012, with a total transaction value of $17.3bn and a per-transaction average of $107. However, as we’ve also noted, only 0.6% of Turkish retail sales take place online, so the balance of payments is firmly weighted towards offline for the time being. This is not just a matter of economic development; there are important market factors which have caused eCommerce to lag behind. Many small businesses which would otherwise sell online lack an appropriate point of sale. Ability to absorb chargebacks is also a concern for small vendors, who may struggle to meet shipping deadlines for large volumes of purchases in a time and cost effective manner. Prior to 2009, eCommerce was largely limited to retail in small-ticket consumer electronics purchases – thin margins meant that few saw an opportunity. A number of large online retailers were also badly damaged by the 2008-2009 financial crisis, which did little to raise confidence in eCommerce. On the demand side, trust and security are important concerns for Turkish consumers. Despite all this, things are clearly changing. The explosive growth of private shopping and group buying sites has been a major boon for Turkish eCommerce. By leveraging social networks and an attractive sense of exclusivity, they have succeeded in creating environments where Turkish users feel comfortable making high-ticket purchases they would previously have made in-store. We now see close to a dozen serious payment players in Turkey: i) Leading micro/mobile payment solutions are Mikro Odeme, Paybyme, PaytoGo / GameSultan, This segment has seen the most transaction activity. On January 25, 2012, Mikro Odeme, Turkey’s leading mobile payment service, received a majority investment from London-based private equity house Mediterra Capital. And in February 2013, Asian e-payments giant MOL acquired a majority stake in PaytoGo/GameSultan. ii) Leading digital wallet solutions are Interbank Card Center’s BKM Express, Turkcell’s Cuzdan (Wallet), Paypal, and Vodafone’s Cuzdan (Wallet). These digital wallet platforms make eCommerce purchases easier and faster by letting users register their debit, credit and/or prepaid cards on the platform in advance. iii) Rapidly growing pre-paid solutions include Ininal Mastercard, Vodafone’s CepNakit Kart, Turkcell’s Cep-T Para Cart, Magir Kart, and Paysafecard. Ininal is the only independent player that offers reloadable prepaid cards with 90% market reach given its large merchant ecosystem and retail distribution system. iv) POS and merchants solutions include Paypal, PayU, Mikro Odeme/3pay, ipara, and multipaynet. Given the rising acceptance of eCommerce in Turkey and considerable room for growth in terms of Internet, mobile and credit card penetration, the payments vertical will continue to remain a competitive but exciting space.16 GP Bullhound LLP
  • 18. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Gaming Turkish gamers — a quarter of the population — are proud to call themselves gamers, and have always embraced gaming without limits. There was a point in 2008, however, when the Ministry of Finance banned Knight Online, Irvine-based K2 Networks’ micro-transaction- based F2P massively-multiplayer online game on the basis that, “there were thousands of people in Turkey that were becoming addicted to games and companies were earning profits without being taxed.” Knight Online was a victim of its success — the profits from Turkish players were reaching $1m a month. The ban was unfortunate, but the game’s popularity is an indicator of the very promising online gaming sector in Turkey. EXHIBIT 11: TURKEY’S GAMING POPULATION (2012) 76 m (100%) Total Turkish population 37 m (48%) Internet Population 22 m (29%) Active Gamers 11 m (15%) Paying Gamers Source: Newzoo Turkey is estimated to have approximately 22m active gamers, or 29% of its total population of 75.6m. Of these 22m, more than half are estimated by Newzoo to be spending money on games. EXHIBIT 12: MONEY SPENT ON GAMES IN 2012 - DISTRIBUTION Casual websites Console Social games 9% networks 24% 9% Mobile phones 10% PC/Mac boxed MMO games 12% 21% PC/Mac download 15% Source: Newzoo According to recent Newzoo research, the Turkish gaming market is estimated to reach $450m in 2012. Although more traditional genres (console, PC, and massively-multiplayer online games) still comprise the largest share (at 24%, 21% and 12% respectively), emerging platforms such as social networks and mobile Internet are already at 20% levels with projections for much higher growth and innovative vehicles, such as in-app purchases, for monetization.17 GP Bullhound LLP
  • 19. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING EXHIBIT 13: GROW TH IN MENA INTERNET USERS 150m 70m 15m 2006A 2011A 2015E Source: Arabnet and Discover Digital Arabica In addition to Turkey, the Middle East and North Africa (MENA) region offers attractive conditions for gaming growth and a significant area of expansion for Turkish gaming companies. According to Arabnet and Discover Digital Arabica, in 2011 the MENA region had around 72m Internet users and is expected to have 150m by 2015, representing an annual growth rate of 21%. Turkey is also a young demographic; the average age is 28. Utilizing the new opportunities afforded by global app store distribution on social networks and Mobile Internet devices, small players in atypical locations have been developing gaming app revenues of a million dollars a day. Turkish gaming companies are becoming alert to such opportunities, and investors are on the lookout for those most likely to break through. PC/Console Gaming According to Newzoo, PC and console gaming currently occupies the largest share of the Turkish gaming market, estimated at around $170m each generating around $85m. Playstation 3 was the dominant console platform with 80% market share by hardware and software sales in H1 2012, with Xbox and Wii sharing the rest of the console market. On the PC and console gaming side, we cannot point to a successful Turkish game developer since the large global developers/publishers dominate the Turkish market. Top publishers are EA, Activision, Konami, Take 2, and UBISOFT. As per 2012 sales, Turkish players favored the following games the most: Pro Evolution Soccer, Fifa, Call of Duty, Medal of Honour, and Need for Speed. In addition to these multi-platform games, Diablo 3, Football Manager and Sims 3 were the most popular titles on PC. The only semi-Turkish global success story is German-based Crytec, led by three Turkish- German brothers, Cevat, Faruk, and Avni Yerli. The company is known for creating exceptionally high-quality games for the PC and next-generation consoles, powered by proprietary 3D-game technology CryENGINE. The company has been on an aggressive expansion spree over the last several years opening offices in the United States, Ukraine, South Korea and, most recently, in the founding brothers’ ancestral Turkey. It is worth mentioning that, Mr. Yerli recently announced that all Crytek games would be free-to-play going forward. It is rumored that the Company’s most recent free-to-play first person shooter game Warface — still in beta — is generating a few million dollars a month in Russia alone. MMO Games Massive multiplayer online (MMO) games in Turkey are hugely popular. According to Newzoo, more than one in five dollars spent on games in Turkey goes to MMO, higher than in many other countries. Turkey is estimated to have around 9.8m regular MMO gamers, 80% of whom are under 35. The share of paying MMO gamers is high at 46%, although average monthly spending is several times lower than in the US. 96% of MMO gamers play free-to-play and 27% play subscription-based MMO games. In revenue terms, free-to-play games take slightly more than half. Spending on MMO and console games at gaming cafes is estimated to add at least another $30m to the picture. The growth and popularity of MMO18 GP Bullhound LLP
  • 20. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING games has been driven by the same factors driving social gaming – a young population, high Internet penetration and usage, and rising disposable income - important for covering the cost of subscriptions. That said, ultimately MMO in Turkey, like MMORPGs, caters more to hardcore gamers than casual ones. Established in 2009, the leading Turkish MMO publisher is Joygame. Unlike social gaming company Peak Games, Joygame does not produce any titles, but localizes and publishes existing ones into the local market. However, the company truly shines when it comes to publishing foreign titles in Turkey, and the user metrics, revenue growth, and strong margin profile speak to this fact. The team spend days working on the graphics, language, local jargon, and analyzing user data as part of the localization process. The company currently has 15m registered users, 2.5m monthly active users and 400,000 daily active users. Wolfteam is the biggest title of Joygame and actually the most popular MMO first-person shooter (FPS) game in the region, estimated to be generating above $2m in monthly revenues. Joygame started out by publishing localized titles for the Turkish market only, but in 2011 it expanded its operations into MENA, first by opening an office in Egypt. Korea- based CJ E&M acquired 50% of Joygame in March 2013. Sobee is a truly Turkish multiplayer game development company founded by highly regarded video game developer Mevlut Dinc. Mr. Dinc moved to his homeland after developing global hits such as the First Samurai and Street Racer to share his wealth of knowledge with the Turkish game developers and gamers. The company develops server based multiplayer games that are available and customised for a Turkish audience. Social Network Gaming Social network gaming typically includes games that are played on social networks and/or have some type of social graph integration. These games are generally monetized through virtual currency, free-to-play and have strong virality components attached to them. Facebook, which went from 100m users in 2008 to 1bn in 2012, has been the main driving force in the surge of social network gaming. EXHIBIT 14: TOP FACEBOOK DEVELOPERS BY DAU (JAN 2013) Company Company Rank Name Country Rank Name Country Metrics Metrics MAU DAU MAU DAU 1 Zynga US 142.3m 16.5m 13 FreshPlanet US 10.2m 1.0m 2 King.com UK 38.3m 4.7m 14 Rovio Finland 10.3m 1.0m 3 Electronic Arts US 17.4m 3.7m 15 Geewa Czech Rep. 10.1m 1.0m 4 Peak Games Turkey 11.8m 3.4m 16 Tetris Online US 5.1m 1.0m 5 Wooga Germany 21.6m 3.2m 17 Kiloo Games Denmark 5.0m 1.0m 6 Social Point Spain 21.3m 2.1m 18 SGN US 6.4m 1.0m 7 FunPlus Game China 9.8m 2.0m 19 6waves Hong Kong 2.2m 0.8m 8 Playdom US 7.4m 1.7m 20 THX Games Hungary 2.8m 0.7m 9 RockYou! US 2.9m 1.2m 21 Boyaa China 4.3m 0.7m 10 Playtika Israel 6.1m 1.1m 22 Digital Chocolate US 4.4m 0.5m 11 PlayQ US 5.6m 1.1m 23 Mynet Turkey 3.8m 0.5m 12 Miniclip.comz UK 6.1m 1.1m 24 Qublix Canada 3.6m 0.4m Source: Appdata.com Out of 32.4m Turkish Facebook users, 89% play games. After three years of operations, Zynga’s smash hit Farmville franchise is still the most successful franchise on Facebook, which speaks to the retention and monetization potential of successful social network games. Turkish people are participants in the success of Farmville - 1 out of 8 Internet users in Turkey plays Farmville.19 GP Bullhound LLP
  • 21. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING The Turkish poster child of global social gaming is Istanbul-based Peak Games, a company which in little over three years has become the world’s fourth largest gaming company on Facebook by daily active users (DAUs). This is impressive, since DAU is a metric that measures highly engaged users and is a proxy for monetization potential. The company’s flagship title is Okey, a digital version of a popular Turkish tile-based game usually played with four people. After resounding domestic success with Okey, Peak released Turkey and MENA focused Happy Farm, a farming simulation game in the style of Zynga’s Farmville. While Happy Farm’s core mechanics are similar to Farmville’s, notable modifications include the use of Arabic instead of English, and characters in local dress (and the absence of pigs). Mynet is another Turkish company that gets a top-25 spot on Facebook’s developer leaderboard. Whereas Peak Games is a dedicated game development and localization studio, Mynet is a diversified Internet media company with a massive user base on its web portal, mobile apps and Facebook, from which online games can be distributed. Mobile Internet Gaming In terms of the number of new games in development, media consumption and monetization, mobile Internet is the current rising star in the Turkish gaming landscape. Despite local complaints with regard to the lack of local developer talent (those who can write code in objective C or Unity) we expect to see more and more high quality games developed in Turkey targeting local and global mobile audiences through Mobile Internet devices such as iPhone, iPad, and Android. EXHIBIT 15: TOP 15 GROSSING IPHONE GAMES IN TURKEY (JAN 2013) Turkish Developer Localised Smaller than 50MB Free-to-Play 1 8 15 14 Source: Apple iOS and Google Play App Stores Although there are a large number of Turkish game developers offering their games on the Turkish app store, only Peak Games finds itself a spot in the top 15 grossing rankings with its highly successful mobile game, Okey Plus. Out of 15 top-grossing games, eight of them are localized for Turkish players, which shows the importance of localization. Two other important points to highlight from our analysis concern the file size and business model. When a mobile game is more than 50 megabytes, consumers cannot download it on the fly, through 3G mobile networks, which creates significant friction. Numbers speak to this fact. 14 of the 15 top-grossing games on the Turkish app store are less than 50 megabytes. In terms of the business model, all of the 15 top-grossing games are free-to-download and monetize through in-app purchases. Finland-based Supercell has the perfect recipe. The company’s highly successful social mobile games, Clash of Clans and Hayday — which are both localized, less than 50 megabytes, and free-to-play — have been consistently ranked first and second in the top-grossing charts in the last few months. Turkish mobile game developers have not only achieved some domestic success, but global recognition as well—with studios such as FUGO, Duello and Picnic Hippo achieving good traction in a very short time. Founded in 2009, FUGO has been a global name in mobile gaming through its popular word challenge game Wordz, which has been distributed in 35 languages downloaded over five million times. Duello, a developer of casual mobile games for20 GP Bullhound LLP
  • 22. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING all ages, was founded in 2010 and has accumulated over 17m installations to date, over one million paid downloads and close to 3m monthly active users through its popular iSlash franchise. Moreover, it has already reached profitability with no outside financing, and is preparing to roll out additional titles to capitalise on its success to date. Picnic Hippo, which was founded in 2011, has also become a global success story with Bucketz, a simple and humorous touch screen game which has been featured by Apple on 146 app stores worldwide and is the number one ranking game by iPhone Quality Index, a site which condenses critical opinion on apps from across the web into a definitive score. All of these studios have produced innovative, popular and internationally accessible titles. They are also small and lean, with no more than ten staff each. Licensed Online Betting Turkey has a complicated relationship with gambling. Although betting is officially illegal under Turkish law, licensed online betting is permitted in a number of selective cases including the state lottery (Piyango), sports betting (Sportoto) and gambling on horse racing. The national lottery is something of an institution for Turkish people and forms a billion dollar market. Soccer and horse racing are also highly popular - and the sports lottery generates in excess of $1.5bn yearly, with track-side betting bringing in around $700m. The sports lottery has been the primary driver behind the shift in Turkey towards betting online – unsurprising given that the Internet provides a constant stream of sports news and insight. Licensed online players are estimated to represent approximately 15% of total betting spend, and growing. The leading “legal” players are Bilyoner.com, Nesine, Tuttur, Oley, and Birebin. Similar to the United States, several changes have been made to Turkish gambling laws in the last decade making it illegal for gambling companies to target Turkish citizens with their products. While there are no legally-licensed Internet gambling websites operating out of the country, foreign operators continue to target Turkish players. Betsson, for example, received more than a quarter of its revenue from Turkey last year. In addition, Sportingbet recently sold its highly popular Turkish bookmaking service Superbahis.com to GVC Sports for approximately $200m, despite attempts from Turkish regulations to stop the sale. The Turkish government has recently announced its intention to sell Sportoto - its only legal sports betting organization - as part of a privatization bid expected to raise in excess of $10bn.21 GP Bullhound LLP
  • 23. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Digital Agencies, Online Advertising and Marketing Both globally and in Turkey, the Internet is the fastest growing advertising medium, attracting advertisers with its rapidly expanding audience, extensive reach, interactive nature and ability to target specific demographics and performance. EXHIBIT 16: GROW TH AND ALLOCATION OF TURKISH ADVERTISING SPEND ($BN) 3.2 Radio 2011A: Billboards 3% $2.4bn 2.8 7% 2.4 Internet 2.0 8% 1.5 TV Print Adverts Media 57% 24% 2009A 2010A 2011A 2012E 2013E Source: Turkish Association of Advertising Agencies, GP Bullhound Overall advertising in Turkey is estimated to be growing at a nearly 20% CAGR from $1.5bn in 2009 to $3.2bn in 2013, with online advertising representing 10% of the market. Other online verticals and online advertising can be expected to benefit each other in turn: as more and more media consumption and spending shifts online, so will advertising dollars. Conversely, with increased online ad spend, Internet companies and online retailers can be expected to capture new consumers through both brand, performance, and video advertising. According to Mediascope Europe, users spend more time with the Internet and TV than any other media (18 hours per week on each), but last year, advertisers still spent three times more on print media and six times more on television than they do on online advertising. In addition, most Turkish advertisers still allocate far less of their marketing budgets to digital and online marketing – around only 10% compared to a global average of 27%. These disparities are expected to be the driving force of double-digit growth rates in online and video advertising spend in the years ahead. EXHIBIT 17: AVERAGE HOURS SPENT ONLINE PER MONTH PER USER (2012) 39.1 30.7 28.9 27.8 27.6 26.3 25.5 25.2 24.7 24.5 UK Turkey France Finland Europe Spain Russia Germany Sweden Worldwide Source: Turkish Association of Advertising Agencies People in Turkey spend more time online than any other European nation except the UK – this gives advertisers a potentially long window of opportunity within which to engage and capture consumers. In addition, online media consumption habits are shifting dramatically. Passive, traditional, one-way media consumption is rapidly evolving towards active22 GP Bullhound LLP
  • 24. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING interaction, dialog, and engaged communities. As previously stated, Turkey is the seventh largest population on Facebook (more than 32m users). The high proportion of users engaging with social media means that advertisers have real opportunities to generate superior performance through rapidly growing web and mobile platforms. And advertisers are embracing this change. According to Egon Zehnder International, more than 75% of businesses in Turkey are using or planning to use Facebook, Twitter, and mobile marketing for digital marketing, and are open to using alternative social channels such as YouTube, blogs, communities, and adgames as long as brand safety remains intact. EXHIBIT 18: TRENDS IN TURKISH EXECUTIVE SPENDING Programs for which Turkish executives Programs for which Turkish executives intend to increase spend intend to decrease spend Email Marketing 55.5% Direct Mail 37.4% Social Media 51.8% Tradeshows & Events 33.6% Mobile 42.8% Advertising 23.0% Search (SEO/PPC) 39.8% Other 17.6% Advertising 26.8% Public Relations 11.6% Tradeshows & Events 17.3% Search (SEO/PPC) 9.3% Direct Mail 15.4% Social Media 4.8% Public Relations 13.9% Email Marketing 3.4% Other 10.2% Mobile 2.4% Source: 2013 Marketing Trends Survey (StrongMail) Likewise, in a recent survey by StrongMail of over 1,000 Turkish executives, 56% said that they planned to increase company spending on email marketing, 52% planned to increase social media spend, and 43% mobile. In accordance with this trend, a significant proportion of executives planned to decrease spending on conventional forms of advertising such as tradeshows, events and direct mails. Although the high importance of social media and mobile is not a uniquely Turkish phenomenon, the fact that online forms of customer engagement have achieved a higher priority than conventional advertising in such a short period of time is a testament to Turkey’s rapid growth and socio-economic conditions conduciveness to social media penetration. Digital Creative Agencies EXHIBIT 19: SELECTED CREATIVE AGENCIES Digital agencies have proliferated in Turkey as entrepreneurs have rushed to match strong demand from businesses seeking the best way to deploy email marketing, social media, mobile and other strategies under a digital agency umbrella. It has consequently become the most crowded and competitive segment of the online advertising sector in Turkey. Whereas many of these agencies were originally service-led businesses, competition and innovation have led players, such as Krombera, to diversify into less labor-intensive and higher margin media products (such as software-driven social media marketing tools tailored to the requirements of each client).23 GP Bullhound LLP
  • 25. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Mobile Enablers As consumption and spending habits move to emerging mobile and tablet (and smart TV) platforms such as iOS and Android, leading Turkish companies need to connect and satisfy their customers in this new and rapidly growing medium. Mobile enablers offer their customers app development and software services. Some of the key solutions and applications include mobile banking, mobile payments, mCommerce, mobile betting and sales force management. Two leading players in Turkey are Pozitron and tmob. Brand and Performance Advertising Brand and Performance advertising businesses are less common in Turkey when compared with digital agencies, and have yet to reach the level of sophistication seen in more mature markets. The most common form of advertising is generic display banner ads and creative campaigns, with performance advertising being deployed less often. On the sell side, leading ad networks include Reklamz, (acquired by Ballroom International Network in December 2011), reklamport and NetBook Media Network. In addition, large media companies and content sites have their own ad networks; these include MedyaNet (Dogan), Turkuvaz, Milliyet, Nokta Grubu, Netbook, Netcom and MCD. On the buy side, leading media buying networks include, GroupM, OMD, Carat, Digitouch (backed by Hummingbird Ventures) and DBI. Online Video Advertising As audiences increase the amount of time they spend consuming video content online, and publishers continue to find ways to use video advertising to monetize non-video content such as casual games, social games, online radio and mobile applications, brands are growing the portion of their advertising budget allocated to digital video. Local online video leaders such as Nokta (owns popular online video portals Izlesene and AlkislarlaYasiyorum) will likely benefit the most from this shift. We also expect more premium content to be consumed and monetized via web and tablets. Leading online video ad networks include Coolshark, Medyanet’s Mobia, Ballroom’s Vidyoda, and Dailymotion’s MCD. Mobile Advertising Turkey’s mobile penetration of over 90% and rapid growth in smartphones make mobile advertising a much needed and highly effective weapon for companies to deploy. Mobile is the fastest growing consumption medium and according to StrongMail’s recent survey, 43% of Turkish advertisers are looking to increase their mobile advertising budgets in 2013. Within mobile, more than 40% of surveyed advertisers are interested in reaching consumers via mobile apps. Leading players include Mobilike, acquired by Madvertise in April 2012, Mobilera, MoveZ, Rabarba and Project House. Email and Mobile Marketing EXHIBIT 20: PRIMARY VALUE OF MOBILE MARKETING TO TURKISH EXECUTIVES Building loyalty and retention 44.4% Expanded reach to new audiences 34.4% Awareness building 33.1% Driving revenue 28.9% New customer acquisition 26.9% Not sure yet 18.0% Advertising 13.3% Tradeshows & Events 3.7% Direct Mail 2.4% Source: 2013 Marketing Trends Survey (StrongMail)24 GP Bullhound LLP
  • 26. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Email marketing is a key growth area for the Turkish advertising vertical. As shown in Exhibit 20, email marketing is expected to be a priority spending area for Turkish executives going into 2013, so specialist providers of such services can be expected to benefit. Leading players include EuroMessage, Sendloop, and ODC. EuroMessage, which recently received funding from Dogus, provides a dedicated software platform that can be operated via a choice of self-service, joint account management or full service plans. The platform is supported by a comprehensive analytics offering, which both draws from and feeds into the clients’ databases to maximize click-through rates and ROI. Sendloop has a slightly different focus. It is primarily a DIY software proposition, focusing on providing clients with a cost-effective, easy to use solution with minimal training requirements. It also has a greater emphasis on email list management, providing a number of tools for segmenting and organizing lists to improve campaign targeting. ODC, on the other hand, provides an e-marketing and campaign management platform that aims to help companies communicate with existing and potential clients, effect sales and create customer loyalty through e-mail, SMS, MMS, wap-push and other mobile channels. Social Media and Online Content With Turkish people spending the third-longest time online in Europe (after the Netherlands and the UK) social media players have – competition aside – a largely captive audience. Turkey’s most popular destinations are all social media or content oriented – Google (online search and Google products), Facebook (social media), YouTube (online video), Mynet (online content, games, and Mynet products), and Microsoft Live (online search and content), Nokta (online video and blogging) — all of which are reaching more than 15m monthly unique visitors per comScore. That Turkey is more socially penetrated than many more mature Internet economies is to a large extent a reflection of the country’s highly social character. Turkey is known for having a strong sense of community, both offline and now online. In a society where people are typically known for being friendly, outgoing and direct, there is little resistance to sharing thoughts and feelings with strangers and friends-of-friends via the Internet. A third trend we observe is that Turkey is also comparatively advanced in terms of digital media penetration rates. EXHIBIT 21: PREFERRED MEDIUM TO FOLLOW THE NEW S – COUNTRY COMPARISON 60% 50% 39% 40% 28% 30% 20% 14% 10% 6% 6% 2% 0% News Sites TV News TV Prime Newspapers Social Radio Channels News Networks Turkey USA China Poland Brazil Japan Source: Campaign Türkiye (campaigntr.com) Although conventional channels are most popular with those over 55, online content is the preferred choice of Turkey’s burgeoning 25-35 year-old bracket. Users access news through a range of portals, including websites for established TV channels, but also online-only platforms which source and generate their own content.25 GP Bullhound LLP
  • 27. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Social Media Social media has an unusually strong and pervasive influence across the Turkish tech ecosystem given the scene’s relative immaturity. Turkey is the seventh largest country on Facebook - with over 32m users, or 89% of all Turkish Internet users; it is also one of the most socially penetrated. Blogging sites are also highly popular. Dedicated blogging platforms such as Blogger.com (owned by Google), Blogcu (owned by Turkish content portal operator Nokta) and Wordpress attract high user volumes, as do more casual and accessible micro blogs such as tumblr and Twitter. EXHIBIT 22: MOST POPULAR SOCIAL MEDIA SERVICES IN TURKEY (DEC 2012) 90% 55% 40% 35% 20% 20% 15% 10% 7% Facebook Blogger Twitter Blogcu Instagram Wordpress LinkedIn Tumblr Bobiler.org Source: comScore, GP Bullhound As we can see from the above, the Turkish social landscape is dominated by established non-Turkish names. There are however a number of local success stories, of which Nokta’s Blogcu is one. Blogcu is a Turkish-language social blogging and blog discovery platform which displays blog posts in the style of Pinterest. Another is Bobiler: founded in 2006, the site began as an online community for Photoshop artists, before evolving into a broader creative social network involving a range of online creaters and curators. Bobiler enables creaters to submit their work to the platform for peer review – the pieces which receive the most votes get published on the site’s main page. This scheme encourages people to submit quality content to compete for publicity, and with high quality content come more users, more votes and ultimately more advertising fees – a virtuous cycle. Internet-Only New Media Portals With more than 16m monthly active users, Nokta — backed by Intel Capital — is the fourth largest (and largest local) Internet property in Turkey, after Facebook, Google, and Microsoft. Nokta’s diverse portfolio of content sites include the leading online video sites in Turkey, namely Izlesene.com and Alkislarlayasiyorum.com. In addition, Nokta owns the leading blogging platform Blogcu, photography portal Fotokritik.com, and highly popular niche content sites such as Sinemalar (movie reviews), Doviz.com (finance), and YemekTarifleri (food recipes). Leadership and growth in online video will likely be the primary focus for Nokta going forward. The second largest local online content portal in Turkey is Mynet and we believe that the company still has much untapped potential. Launched in 1998, it offers over 40 different services to more than 18m customers, including email, news, online games and social networking — and leverages its large user base and strong brand presence to generate cross- selling opportunities between them. Mobile, games, and videos will likely be the key growth drivers going forward. Yeni Media Internet Publishing is another successful Internet-only media company in Turkey. The company owns two leading Internet news portals, namely Haberler.com and SonDakika.com, intersinema.com, popular cultural portal Antoloji.com, health portal Hastane.com.tr, woman’s portal YeniKadin.com, and eDevlet.com.26 GP Bullhound LLP
  • 28. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Another sizable player is ekolay. The company started as an Internet service provider before pivoting into a news, magazine and entertainment portal, and is owned by Dogan Online. Two new-comers are: Ilkekran.com and Onedio. Ilkekran is the first Turkish interactive digital news and media platform to integrate rich content and eCommerce, and to have its own dedicated 24/7 news team. Ilkekran aggregates and curates content from variety of sources, third party services and website users who contribute by posting articles, comments and reviews. Onedio is an innovative social news portal which enables users to create, follow, share and comment on content. Traditional Media - Online News and Content Outlets Big and traditional is still in control of most of the online content consumption in Turkey. The top three players by unique users are Dogan Online and Publishing, Demiroren’s Milliyet Group, and Hurriyet Internet Group (also owned by Dogan). All of these publishing groups reach more than 15m unique active users per month. Following these top players are Calik Holding’s Turkuvaz Publishing (Owns Sabah, Fotomac, and ATV), Ciner Medya Group (Owns Haberturk), and Dogus Group (Owns Star, NTV, and CNBC). Online Video Turkish people are avid consumers of online video. According to comScore, nearly 22m people watched an average of 210 online videos each month in Turkey in 2012 and video views grew 32% in 2012. Average daily unique viewers and total minutes of video views, metrics that act as a good proxy for engagement levels — grew about 20%. When we segment the market to males aged 15-34: they account for 41% of the online video viewing, a good indicator of future growth. 40% of this demographic watches online videos frequently, indicating that online video is moving to the mainstream in Turkey. With more than 10m monthly active users Nokta’s Izlesene is the most popular local online video sites in Turkey. Magnet’s UzmanTV and Netbu’s Zapkolik are other highly popular video sites, with more than 5m monthly active users each. EXHIBIT 23: POPULAR ONLINE VIDEO SITES BY CATEGORY Source: GP Bullhound Online Music Digital music is a highly popular, yet still emerging, online content market in Turkey. The dominant content providers are not third party aggregators, but large carriers and platform players: TTNet’s Müzik, Nokia’s Ovi, Avea’s Müzik, Turkcell’s Genç Turkcell and Vodafone’s Vodafone Live are the leading players for legal music listening. One of the exceptions to the rule is Fizy – founded in 2008, it is an online music and video search engine which is based in and only available in Turkey. In 2010 the site was banned after alleged copyright violations, before being restored in 2011 under the ownership of cell phone operator Turkcell. Karnaval, online radio platform, is another popular online music destination of note.27 GP Bullhound LLP
  • 29. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Online Dating Turkey’s young, social and mobile population makes the country a prime market for online dating. With 50% of the population under the age of 30, there is a plentiful supply of potential subscribers - and partners. Online dating has been a core business model since the early days of Turkish tech: the first major player siberalem.com established itself in 2000, and offers a broad range of content and dating tools including video chat, a match-making service and dedicated customer support via email, telephone and online messaging. Besides established, broad-based generalists such as Siberalem, we see more targeted players such as Istanbul.net. Istanbul.net is a city-based dating network: launched in 2005 by Magnet Media, it differentiates itself by accepting only members who are based in the capital city. Users are able to search by district and are able to see who has viewed their profile and add them to their favourites list. The site has grown rapidly and now has over 3.5m members. Magnet also owns and operates the same type of site for 13 other large Turkish cities such as Ankara and Izmir and reaches 7.5m members. Another specialist is eCift, which is Turkey’s answer to eHarmony. Its differentiator is a proprietary personality test developed by a Turkish psychologist, which is used to filter and match prospective partners. eCift currently has over 3m members, around 52% of whom are women and 48% men. It has also established a presence in Germany through eCift.de. Three other players of note are Pembe Panjur, Gayet.net, and YouLike. Online Vertical Content Within the online content verticals, sports portals are hugely popular among Turkish people. Whereas around 46% of Europeans visit sports sites on average, Turkey has the highest reach of the region with approximately 70% of Internet users – or 16.4m people - logging on regularly to such portals, and is second globally only to the US (with a reach of 71%). The top Turkish sports portals are Mackolik, Sahandan, Fanatik, and Sporx, with around 3m monthly active users each. These sites typically source their own sports news and content but provide access to betting through a third party online dealer, which in turn connects the user with and provides quotes from government-authorized betting company Iddaa and licensed online betting companies including Bilyoner, Nesine.com, Tuttur.com, Oley and Birebin. Technology portals are also very popular in Turkey. Webrazzi is the country’s answer to Techcrunch - it focuses mainly on issues regarding local and regional Internet and digital markets, startups, investments, technological developments and events, and is available in both Turkish and English. DonanimHaber and ShiftDelete are also highly popular technology content channels, attracting over 8m and 3m monthly active users respectively with a targeted focus on computing and video game hardware and software. Reference sites have large dedicated audiences as well. Eksisozluk, Turkey’s urbandictionary.com, is a collaborative humorous “dictionary” and one of the largest online communities in Turkey, with over 5m monthly active visitors and 500,000 registered loyal users. Antoloji, founded in 1999, is a highly popular culture, art, and poetry portal and caters to over 3m monthly active users a month. SesliSozluk, founded in 1999, is the dictionary.com of Turkey and between its web portal and mobile apps, is estimated to have more than 2m monthly active users. Fashion and women’s interest portals have been strong beneficiaries of the Turkish eCommerce boom, and have themselves helped to fuel it. These sites not only aggregate and generate content on a wide range of issues, but also have a notably strong social element – much of the attraction is being able to discuss topics with other Turkish women, rather than simply to read articles. Forumdas.net, Kadinlar Kulubu and Melekler Mekani, are all leading sites with over 3m monthly unique users each. These sites have active, engaged audiences of women with spending power – a valuable target for eCommerce players and a healthy source of advertising revenue.28 GP Bullhound LLP
  • 30. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING For health and medical portals such as ilacpedia, Doktorsitesi.com however, the focus is more firmly on the site’s own content – due partly to the greater gender mix, but also because of the more specialized nature of subjects. Most of these still have a social element though – ilacpedia, for instance, maintains a presence across most of the leading social networks. In the case of Doktorsitesi, users actually connect directly with doctors online to obtain advice and arrange consultations. Given Turkey’s high credit card penetration, it is unsurprising that personal finance websites such as Doviz.com attract a lot of traffic as well — more than one million active users in Doviz’s case. Last of all, Turkish movie portals have thrived on the back of what is now a booming film industry. After the Turkish government implemented an incentive package to stimulate growth in the film industry in 2004, the number of domestic movies being produced in Turkey more than doubled from around 30 in 2005, to nearly 70 in 2011. Since the year 2000, annual cinema ticket sales in Turkey have risen to 20m and the number of theatres to over 500 nationwide. Domestic films routinely surpass American blockbusters at the box office, although foreign films are still highly popular. Sinemalar.com is Turkey’s leading film content site with over 3.5m monthly active users, offering listings, reviews and trailer clips, as well as discussion forums. IMDB also has a strong presence with over 2.5m users, although it has no Turkish language option.29 GP Bullhound LLP
  • 31. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGSelected Private Placements Date Deal Value Announced Target Investor Investor HQ (US$m ) Com m entary Mar-13 Clover Games eTohum Turkey - Mobile game developer Mar-13 Tablet Seminerler Angels (Hasan Aslanoba) Turkey 0.50 Workshop marketplace Mar-13 Muvizi eTohum Turkey - On-demand online movie streaming platform Feb-13 Mapps Galata Business Angels Turkey - Saas solution for apartment managers and residents Jan-13 59Saniye Eksi Sozluk Turkey - Short-form social video sharing platform Jan-13 SOCIAPlus Galata Business Angels Turkey 0.45 Develops social commerce softw are solutions Jan-13 StilSOS Galata Business Angels Turkey 0.23 Shopping aggregator and social shopping site Mobile eCommerce app developer focused on the retail and service Jan-13 Boni Angels (Hasan Aslanoba) Turkey 1.00 industry Jan-13 Solvoyo 212 Limited Turkey - Develops supply chain management softw are Dec-13 Koding RTP Ventures, Greycroft Partners US 7.25 Developer community and cloud development environment Home services lead gen portal connecting home ow ners w ith Dec-12 Ustaeli Galata Business Angels Turkey 0.10 tradesmen Nov-12 Kaft Angels (Erdem Yurdanur and Tarkan Onar) Turkey 0.25 Online retailer of private label tshirts Nov-12 Vipdukkan ePlanet Capital US NA Turkish private shopping club Nov-12 Iste Oyun Angels (Erdem Yurdanur and Sadok Kohen) Turkey 0.63 Turkish gamification platform Nov-12 idemama Angels (Alp Saul, Cem Sertoglu, Evren Ucok) Turkey - Design crow dsourcing platform for professional designers and SMEs Sep-12 Yemek Sepeti General Atlantic; Endeavor Global Investment Arm US 44.00 Operates online food ordering and delivery portals Aug-12 Inploid Galata Business Angels Turkey 0.17 Social platform enabling users to share content and ask questions Aug-12 HemenKiralik 212 Limited Turkey - Provides information about daily short term rentals available in Turkey Jul-12 Annelutfen Ventech and Angels France NA Operates an online discount shopping club for mothers and children Jun-12 Lidyana ruNet Holdings Russia 3.30 Online retailer of fashion jew ellery May-12 Evidea Tiger Global Management US 1.00 Online store for home furnishings and decorations Social gifting platform enabling people to share the cost of gifts w ith May-12 GrupHediye Angels (Ibrahim Harunoglu, Ali Harunoglu, Aydin Ulusan, Pimsa) Turkey 0.83 friends May-12 Ideasoft CIT Yatirim and Projectz Turkey 0.22 Provides solutions for small to midsize businesses May-12 Sorula Angels (Erdem Yurdanur and Tarkan Onar) Turkey 0.03 Q&A platform enabling users to pose and receive answ ers to questions Apr-12 Socialw ire First Round Capital US 2.00 Facebook advertising optimisation platform Apr-12 Hazinem 212 Limited Turkey - Online retailer of gold, diamonds and semi-precious gemstone jew ellery Apr-12 CloudArena 212 Limited Turkey - Offers SaaS digital marketing, search and booking travel solutions Apr-12 Gimora Aksoy Internet Ventures Turkey 0.23 Online shop for accessories, bags, and jew elry Apr-12 Unnado iLab Ventures Turkey - Operates an online discount shopping club for mothers and children Mar-12 Anneysen Angels (Caglar Erol) Turkey - Social media site for mothers and mothers-to-be Mar-12 euro.message Dogus Grubu Turkey - E-marketing platform Mar-12 HemenKiralik 212 Limited Turkey - Provides information about daily short term rentals available in Turkey Mar-12 Apsiyon Angels (Tarik Bugra Yildirim) Turkey 0.21 Apartment and residence management app and social netw ork Feb-12 Sporcum Tiger Global Management; Angels (Emre Kurttepeli) Turkey 1.03 Online retailer of discounted sport and casual clothes Game development company focusing on social, casual, and mobile Feb-12 ArcadeMonk 212 Capital Partners Turkey - gaming Feb-12 Biacayip Etohum Turkey - Web shopping for unique gifts Private shopping site offering designer retail for men, w omen, kids, and Feb-12 Trendyol Tiger Global Management; Kleiner Perkins US 13.79 home Jan-12 Balerin 212 Capital Partners Turkey - Online cosmetic shop Jan-12 Butigo 212 Capital Partners Turkey - Online retailer of affordable fashion footw ear for w omenSource: CapitalIQ, GP Bullhound30 GP Bullhound LLP
  • 32. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWING Selected Private Placements (Cont’d) Date Deal Value Announced Target Investor Investor HQ (US$m ) Com m entary Dec-11 Ciceksepeti Amazon.com US - Operates an online flow er store Nov-11 MARKmost Angels (Ahmet Emre Sari, Sina Afra, and Tolga Tatari) Turkey - Personalised recommendations app in the style of Foursquare Nov-11 eCift European Investment Fund; 3TS Capital Partners Luxembourg 4.04 Operates an online dating platform Nov-11 LuxyBox Angels (Çağlar Erol) Turkey - Online luxury perfume and cosmetics store Nov-11 Yemek Sepeti European Founders Fund; Angels Turkey 2.77 Operates online food ordering and delivery portals Oct-11 TeklifBorsasi Vallie Invest US 0.28 Service professionals lead gen marketplace Oct-11 tasit Akinon; Angels Turkey 0.81 Provides an online auto classifieds service Oct-11 Grupanya Intel Capital US - Operates a daily discount deals site Sep-11 Peak Games Earlybird Venture Capital; Hummingbird Ventures Germany; Belgium 11.50 Develops and publishes online social games Aug-11 eCift B-To-V Partners Sw itzerland - Operates an online dating platform Private shopping site offering designer retail for men, w omen, kids, and Jul-11 Trendyol Kleiner Perkins; Tiger Global Management US 26.00 home Jul-11 Tamindir Angels (Devrim Demirel) Turkey - IT and computing content and review s portal Jun-11 Vipdukkan ePlanet Capital US 5.00 Operates a number of e-commerce sites May-11 sevenice Angels (Ahmet Alabalık) Turkey 0.50 Offers social media, site design and video production services May-11 Rezztoran Grupanya Turkey - Online table booking platform May-11 Mekanist Pond Venture Partners UK 3.36 Operates a place search engine May-11 Sporcum Tiger Global; Angels (Emre Kurttepeli) US; Turkey - Online retailer of discounted sport and casual clothes May-11 Peak Games Earlybird Venture Capital; Hummingbird Ventures Germany 5.00 Develops and publishes online social games Online media company connecting users through social media Mar-11 Nokta Intel Capital US 2.50 properties Mar-11 Grupca Bilyoner Turkey - Group buying and discount deals site Mar-11 Unnado iLab Ventures Turkey 0.14 Operates an online discount shopping club for mothers and children Feb-11 Hediyemo Angels (Emre Kurttepeli) Turkey - Provides a social and mobile online gifting platform Private shopping site offering designer retail for men, w omen, kids, and Dec-10 Trendyol Tiger Global Management US 10.00 home Jul-10 Mekanist Pond Venture Partners UK 0.65 Operates a place search engine Private shopping site offering designer retail for men, w omen, kids, and Jul-10 Trendyol Tiger Global Management US 2.85 home Jul-10 eCift B-To-V Partners; Euro Serve Media; Corp. Fin. Partners Germany - Operates an online dating platform Jun-10 Dijimecmua iLab Ventures Turkey - Operates as a digital magazine platform Jun-10 Neredekal iLab Ventures Turkey - Operates an online holiday and accomodation guide for travellers Mar-10 Markafoni Trayas (Klaus Hommels and Oliver Jung) Germany 7.20 Web shopping club offering apparel, accessories and cosmetics Jan-10 Peak Games Hummingbird Ventures Belgium 1.50 Develops and publishes online social games Feb-09 Mekanist.net Angels (Mehmet Yucesoy) Turkey 0.20 Operates a place search engine May-08 Yemek Sepeti European Founders Fund Management Germany 4.00 Operates online food ordering and delivery portals May-07 GittiGidiyor eBay US - Online consumer portal offering auctions, stores and fixed price listings Feb-06 GittiGidiyor iLab Ventures Turkey - Online consumer portal offering auctions, stores and fixed price listingsSource: CapitalIQ, GP Bullhound31 GP Bullhound LLP
  • 33. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGSelected M&A Transactions Im plied Date Deal Value Valuation Announced Target Buyer Buyer HQ (US$m ) (US$m ) Com m entary Mar-13 Joygame CJ Games Turkey 15.0 30.0 50% acquired. Publisher of massive multiplayer games Mar-13 Beyazkutu DEMSA Group Turkey - - Private shopping Mar-13 PaytoGo and Game Sultan Money Online (MOL) Turkey - - Mobile and gaming payments Jan-13 Preview MyEmail SMTP US - - Email testing and analytics platform Jan-13 Nasil TV Mynet Turkey - - Online video how -to guides on a range of subjects Jan-13 Iyibilir Doga Bilisim Holding Turkey - - E-learning platform Dec-12 Idefix Dogan Online Turkey - - Online retailer of books, e-books, e-readers, music and DVDs Sep-12 WestWing Turkey (Rocket Internet) Pera Bulvari Turkey - - eCommerce site focuses on home & living products Jun-12 Mackolik Perform Group UK 22.6 44.3 51% acquired. Ow ns and operates digital sports media portals Ad netw ork providing rich media and video ads on smartphones Apr-12 Mobilike Madvertise Germany - - and tablets Apr-12 Enmoda.com (Ow ned by Dogus) Markafoni Turkey - - E-commerce site that retails online fashion products Mar-12 Evmanya Dogan Turkey - - Internet shopping w ebsite for home decoration goods Mar-12 e-bebek.com Topbas Family Turkey - - E-commerce site that retails mother and baby products Feb-12 Kammelna Peak Games Turkey - - MENA-based social game developer Jan-12 41? 29! WPP Ireland - - Digital marketing agency serving Turkish consumer brands Jan-12 Mikro Odeme Mediterra Private Equity UK - - Mobile payments Ballroom International Jan-12 reklamz, linkz, and sem A.S. Germany - - Leading Turkish advertising netw ork Netw ork Nov-11 Grupfoni Quants Financial Services Sw itzerland - - Operates a w eb portal w hich offers daily deals Jul-11 Markafoni Naspers (via MIH Allegro) Netherlands - - Web shopping club offering apparel, accessories and cosmetics Jun-11 AlkislarlaYasiyorum Nokta Turkey - - Popular humour video site Provides Internet platforms and services for mobile netw ork Jun-11 United Cellular Technologies Group Neomobile Italy - - operators May-11 Cimri Bilgi Teknolojileri ve Sistemleri iLab Ventures Turkey - - Provides online product and price comparison services Apr-11 Cimri GittiGidiyor Turkey - - Price comparison site Apr-11 GittiGidiyor eBay US 217.0 261.4 83% acquired. Online ecommerce marketplace. Mar-11 Genc Sinema Filmlerim Turkey - - Online content portal providing movie trailers, galleries and review s Feb-11 Fizy Turkcell Turkey - - Online music search engine Dec-10 Besinci Cadde Alamarka Turkey - - Online specialty perfume retailer Sep-10 Project House Havas Worldw ide US - - Provides interactive, mobile and e-mail marketing services May-10 Alamarka Investco US - - Online specialty perfume retailer Jan-08 Cember XING Germany 4.4 4.4 Provides online business netw orking services Nov-06 Biletix Ticketmaster US - - Provides an online event ticket booking and sales portal Aug-06 Beyaz Perde MYNET Turkey - - Operates as a cinema w ebsite called beyazperde.mynet.com Internet portal offering email, social netw orking, games, music and Feb-06 MYNET Tiger Global Management US - - videoSource: CapitalIQ, GP Bullhound32 GP Bullhound LLP
  • 34. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGFacebook and Mobile Internet RankingsTop Grossing iPhone Apps Rank Game Company Country Turkish? P2P? Size 1 Clash of Clans Supercell Finland Yes Yes 47.8 MB 2 Hay Day Supercell Finland Yes Yes 36.4 MB 3 Candy Crush Saga King.com UK No Yes 34.3 MB 4 Top Eleven Nordeus Serbia Yes Yes 42.2 MB 5 Poker by Zynga Zynga USA Yes Yes 41.0 MB 6 Okey Plus Peak Games Turkey No Yes 19.8 MB 7 Lords & Knights XYRALITY Germany Yes Yes 43.1 MB 8 Temple Run 2 Imangi Studios USA No Yes 45.7 MB 9 KoC: Battle for the North Kabam USA Yes Yes 31.6 MB 10 Subway Surfers Kiloo Denmark No Yes 46.4 MB 11 Slotomania Playtika Israel No Yes 41.4 MB 12 CSR Racing NaturalMotion UK No Yes 134.0 MB 13 Türkiye Texas Poker Boyaa Interactive China Yes Yes 24.7 MB 14 Diamond Dash wooga Germany Yes Yes 25.9 MB 15 Mustang Tuning Crash Chase Anibal Soares Portugal No Yes 38.6 MBSource: Apple iOS StoreTop Grossing iPad Apps Rank Game Company Country Turkish? P2P? Size 1 Clash of Clans Supercell Finland Yes Yes 47.8 MB 2 Hay Day Supercell Finland Yes Yes 36.4 MB 3 Candy Crush Saga King.com UK No Yes 34.3 MB 4 Minecraft - Pocket Edition Mojang Switzerland No No 3.1 MB 5 KoC: Battle for the North Kabam US Yes Yes 31.6 MB 6 Subway Surfers Kiloo Denmark No Yes 46.4 MB 7 Slotomania HD Playtika Israel No Yes 32.7 MB 8 Modern War Funzio US No Yes 36.5 MB 9 Agent Dash Full Fat UK No Yes 29.1 MB 10 FIFA 13 Electronic Arts US No No 1.4 GB 11 Poker by Zynga Zynga US Yes Yes 41 MB 12 Slotomania Playtika Israel No Yes 41.4 MB 13 Temple Run 2 Imangi Studios US No Yes 45.7 MB 14 Slots Shark Party US No Yes 45.9 MB 15 CSR Racing NaturalMotion UK No Yes 134 MBSource: Apple iOS Store33 GP Bullhound LLP
  • 35. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGTop Grossing Google Play Apps Rank Game Company Country Turkish? P2P? Size 1 Top Eleven Football Manager Nordeus Serbia No Yes 17 M 2 Blood Brothers Mobage Japan No Yes 29 M 3 KoC: Battle for the North Kabam US No Yes Varies 4 Candy Crush Saga King.com UK No Yes Varies 5 Age of Empire Silent Ocean ?? No Yes 18 M 6 Okey Plus Peak Games Turkey Yes Yes 12 M 7 Zynga Poker Zynga US No Yes Varies 8 The Hobbit Kingdoms Kabam US No Yes Varies 9 Arcade Legends Spacetime Studios US No Yes 5.9 M 10 Eternity Warriors 2 Glu Mobile US No Yes 161 M 11 Wild Blood Gameloft US No No 720 M 12 Subway Surfers Kiloo Games Denmark No Yes 22 M 13 Need for Speed Most Wanted Electronic Arts US No No 12 M 14 World at Arms Gameloft US No Yes 12 M 15 Smurfs Village Beeline Interactive US No Yes 58 MSource: Google Play App StoreTop 25 Facebook Game Developers Company Rank Name Country No. Apps in Top 10 No. Apps in Top 100 Total No. Apps by Type Metrics Apps MAU DAU MAU DAU MAU DAU Developed Published 1 Zynga US 142.3m 16.5m 3 4 38 35 96 95 1 2 King.com UK 38.3m 4.7m 1 1 7 6 13 13 0 3 Electronic Arts US 17.4m 3.7m 0 0 18 18 57 57 0 4 Peak Games Turkey 11.8m 3.4m 0 0 9 11 37 25 12 5 Wooga Germany 21.6m 3.2m 1 0 3 3 8 8 0 6 Social Point Spain 21.3m 2.1m 0 0 3 3 21 21 0 7 FunPlus Game China 9.8m 2.0m 0 0 2 2 11 11 0 8 Playdom US 7.4m 1.7m 0 0 21 21 59 59 0 9 RockYou! US 2.9m 1.2m 0 0 10 11 33 31 2 10 Playtika Israel 6.1m 1.1m 0 0 1 1 4 4 0 11 PlayQ US 5.6m 1.1m 0 0 1 1 3 3 0 12 Miniclip.comz UK 6.1m 1.1m 0 0 9 9 14 14 0 13 FreshPlanet US 10.2m 1.0m 0 0 3 3 6 6 0 14 Rovio Finland 10.3m 1.0m 0 0 2 2 5 5 0 15 Geewa Czech Rep. 10.1m 1.0m 0 0 5 5 7 7 0 16 Tetris Online US 5.1m 1.0m 0 0 2 2 8 8 0 17 Kiloo Games Denmark 5.0m 1.0m 0 0 1 1 1 1 0 18 SGN US 6.4m 1.0m 0 0 5 5 24 24 0 19 6waves Hong Kong 2.2m 0.8m 0 0 0 0 474 424 50 20 THX Games Hungary 2.8m 0.7m 0 0 0 0 7 7 0 21 Boyaa China 4.3m 0.7m 0 0 6 6 30 30 0 22 Digital Chocolate US 4.4m 0.5m 0 0 3 3 30 30 0 23 Mynet Turkey 3.8m 0.5m 0 0 3 3 17 16 1 24 Qublix Canada 3.6m 0.4m 0 0 0 0 10 10 0 25 Halfbrick Australia 2.0m 0.2m 0 0 1 0 2 2 0Source: Appdata.com34 GP Bullhound LLP
  • 36. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGCompany Tree Diagrams by SectorHorizontal eCommercePayments35 GP Bullhound LLP
  • 37. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGVertical eCommerce36 GP Bullhound LLP
  • 38. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGGaming37 GP Bullhound LLP
  • 39. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGOnline Advertising38 GP Bullhound LLP
  • 40. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGSocial Media and Online Content39 GP Bullhound LLP
  • 41. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGDISCLAIMERNo information set out or referred to in this research report shall form the basis of any contract. The issue of this research report shall not be deemed tobe any form of binding offer or commitment on the part of GP Bullhound LLP. This research report is provided for use by the intended recipient forinformation purposes only. It is prepared on the basis that the recipients are sophisticated investors with a high degree of financial sophistication andknowledge. This research report and any of its information is not intended for use by private or retail investors in the UK or any other jurisdiction.You, as the recipient of this research report, acknowledge and agree that no person has nor is held out as having any authority to give any statement,warranty, representation, or undertaking on behalf of GP Bullhound LLP in connection with the contents of this research report. 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GP Bullhound Inc. engages in private placement andmergers and acquisitions advisory activities with clients and counterparties in the Technology and CleanTech sectors.40 GP Bullhound LLP
  • 42. GP B ULLHOUND – T URKISH I NTERNET REPORT – T URKISH COFFEE : GET I T W HILE I T’ S B REWINGTHE GP BULLHOUND BANKING TEAMGP Bullhound is a research-centric investment bank with offices in London, San Francisco, Stockholm andBerlin. CHRISTIAN MANISH SIR MARTIN SMITH HUGH CAMPBELL LAGERLING MADHVANI Chairman Managing Partner Managing Partner Managing Partner GUILLAUME PER ROMAN ANDRE SHORTELL ALEC DAFFERNER BONNETON Managing Partner Partner Partner Partner JULIAN LORD CLIVE SIMON NICHOLLS RIEDLBAUER HOLLICK GRAEME BAYLEY Partner Partner Partner Partner ANTONY ALI DAGLI CECILIA ROMAN ALEXIS SCORER NORTHROP Director Director Vice President Senior Advisor CLAUDIO PER LINDTORP CARL BERGHOLTZ MARK KLIMMEK ALVAREZ Vice President Vice President Vice President Vice President SASHA CHRISTOPH ALISTAIR MALINS DAVID RAABE AFANASIEVA AMELS Vice President Vice President Vice President Associate STIRLING MALCOLM ALESSANDRO CARL WESSBERG CASARTELLI ADELHELM FERGUSON Associate Associate Associate Associate PHILIPPE MALCOLM FLORENT ROULET LILJANA XHEKA GREMILLET HORNER Associate Analyst Analyst Analyst ANTHONY DANIEL HERTER RAVI GHEDIA OLOF RUSTNER AUGUSTIN Analyst Analyst Analyst Analyst DANIEL MAGGS Analyst London San Francisco Stockholm Berlin 52 Jermyn Street 1 Maritime Plaza Suite 1620 Birger Jarlsgatan 5 Oberwallstr. 20 London SW1Y 6LX San Francisco CA 94111 111 45 Stockholm 10117 Berlin Tel: +44 207 101 7560 Tel: +1 (415) 986 0191 Tel: +46 8 545 07414 Tel: +49 30 610 80 600 Fax: +44 207 101 7561 Fax: +1 (415) 986 0180 Fax: +46 8 545 07101 Fax: +49 306 108 060 29 Authorised and regulated Member of FINRA by the FCA41 GP Bullhound LLP