Romanian-Canadian MBA Program 2010

The World of General Manager and Introduction to Strategic Management

Individual asignement

Neogen SA has two main businesses: recruiting (Bestjobs) and social network/advertising
(Neogen), plus an experiment in the gaming area (Doizece). Bestjobs was developed by the
company from scratch ten years ago, and doing nicely on a consolidated Romanian market. The
social networking/advertising business was the result of multiple acquisitions and
repositionings which resulted in unclear brand of the main product, neogen.ro. The online
advertising market was fragmented and the social-networking competitors where strong (Hi5)
and growing very fast (Facebook).

In 2007 the company received several million euros from two investment funds (Tiger, USA
and Garvest, Holand), which got 28% of the company in return. 2008 was mainly about
integrating/unifying producs across the 4 countries the company was operating in (Romania,
Bulgaria, Serbia, Moldova), while the crisis-stricken 2009 was about reducing costs and
refocusing on Romania (by cutting the number of employees almost by half the company
became profitable after two years of losees). The main focus of 2010 was supposed to be sales
and profitability across all products/countries. The management wanted to meet the 10 th
anniversary of the company in the best of financial health.

The management team was structured by countries (each country covering both bestjobs and
social-network). This was a good structure for cost-reduction purposes, but it didn't help
managers to focus on specific businesses (recruitment, advertising). At the beginning of 2010
the company decided to change the management structure into one focused on product
Business Units: Neogen, BestJobs, Games.

While bestjobs.ro (who represented over 60% of the company revenues) was recovering from
the financial/economic crisis, registering healthy growth and profits, it's international strategy
was not working: both bulgarian and serbian recruiting markets were dominated by strong local
competitors, while the moldovan market was too small to mention. The company should decide
whether to allocate serious resources to compete on these markets, or to focus on Romania (and
maybe on newly-acquired CeeVee.com, which offers the perspective on an european/global
expantion).

Anyway, not Bestjobs unit is keeping the management up at night. Far more problematic was
Neogen Business Unit. Both revenues and traffic (the main leading indicator) where dropping,
compared to Facebook and, more allarmingly, compared to younger local social-networking
startups. Neogen Business Unit was loosing about 30-40k every month. The road to profitability
was not clear, as well as the resources allocation priorities: Romania vs international markets,
traffic growth vs monetisation, focus on direct clients, advertising agencies or users' revenues.
How to differenciate from Hi5/Facebook, and how to organize internally in order to become
profitable and grow again?

The main monetisation tools are demographically-targeted text-ads and branding (banners and
special projects). Additional streams are from classifieds and virtual gifts. A problem that
prevented neogen from from growing the advertising sales was low reach (percentage of all
unique internet users). The sites didn't grow virally as the social networks are supposed to, and
even if they have high pageviews/user, they lacked significant demographics in order to have a
comprehensive offer to advertisers (not enough young users in Ro+Rs, not enough old ones in
Bg+Md). Once it's star site, the bulgarian Impulse.bg was dropping as fast as it was rising a
year ago – users where moving to Facebook.

One possible solution was to add these demographics through acquisitions – this was also a way
to acquire know-how and maybe grow again. But the investors where not interested, they said
that: 1.preserving/growing cash is good, 2. acquisitions distract management teams, 3. 'social
networks' monetisation and even survival is not assured. Even if the investors could only block
deals above a certain threshold, CEO of Neogen valued their input and didn't want to go against
their vote unless he was sure about the decision taken.

As Facebook was growing into winning generalist social network, the other 'social networks'
should find their niche. A social network can be segmented by demography (webkinz), context
(linkedin), content type (flickr). Even Hi5, the most popular social-network in Romania, had
chosen to focus on games instead of competing with Facebook.

The board of directors (5 people) gathered in Brasov to discuss the options, and the most
obvious seemed to be:
− give users what they want, let them use the site the way they do now: for dating. While
the easier solution from the product point of view, this ment to focus entirely on user-
revenues, renouncing the advertising revenues (and cutting most of the sales/support
people in the process);
− follow the monetisation: focus on social-networking (photo-sharing, status-updates) and
sell advertising. This was the strategy followed in the last couple of years, but it was
getting into direct competition with Facebook;
− refocus the site on classifieds, something that the company was supposed to know how
to do (witness the bestjobs success). This was the most difficult from the user-message
point of view: the users came to the site mostly for fun interactions, not for transactions.

The CEO was pushing for something called 'local' – a combination of focus on people and local
services/classifieds filtered by cities. He even replaced the managers of neogen business unit,
the main reason being the fact that the business unit managers did not agree with the local
services direction, trying instead to innovate their way into competing with Facebook.

Currently the team is developing new product features, to be followed by content-gathering, and
only later focusing on monetisation. But not only the numbers continue to decline, the main
problem is that the steps needed to reach the destination are not clear. While the CEO is trying
to put up a confident face, he recognizes that revenues might drop to meaningless amounts
before maybe starting to grow again in the new format.

„We're moving neogen message from 'interesting people' to 'pulse of the city' (people, places,
events and classifieds - in your city, in real time)” - this is from an email sent by CEO on April
9th – today is november 19th and the team is not yet fully behind the idea.