The mission of Going Global, which appears on ePrairie on most Tuesdays, is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.
CHICAGO Ė George Deeb is the founder and CEO of iExplore, a Chicago-based Internet company aimed at the growing trend of adventure and experiential travel.
Prior to iExplore, Deeb was a vice president in the investment banking department of Credit Suisse First Boston where he was a specialist in consumer retailing. An avid adventure traveler, he created iExplore as a solution to the hardships he encountered in planning and booking his own adventure trips around the world.
In part three of a three-part Q&A, Deeb sat down with international expert Michael Muth to discuss foreign currency exposures, the value of learning foreign languages and the advantage of the Internet.
Michael Muth: What percent of your revenues are derived from online advertising?
George Deeb: About 50 percent of our revenues come from advertising. We got into it seriously one year ago. We saw a huge increase in 2004.
In 2005, we needed to put more focus on it and we hired a full-time advertising salesperson in May 2005. In addition to selling iExplore.com, we also have a network of other Web sites with similar demographics and we do a revenue share with them. We sell out two to three months ahead of time so we have more time to leverage our assets.
MM commentary: Again, this is a great risk mitigator by diversifying revenue streams so theyíre not dependent on industry segments.
MM: You know, 50 cents seems high for a first bid for cost per click. How do you justify this rate?
GD: We have two types of advertisers. First, we have graphical brand-building banners.
Those are impression-based ads. We set them at market-competitive rates. We know the acceptable rates. Second, we have cost per click, which is based on ROI. They donít have big budgets. They think pay for performance. Itís actually a very low rate when youíre selling at our price levels. When youíre selling low-cost items, rates are much lower. Higher margins support higher cost per click.
MM: How can you afford to offer the guaranteed lowest prices?
GD: For three reasons. First, with our cost structure as an Internet business, we have no paper for catalogues or postage costs. Second, we donít have travel agent distribution so we donít give away that 15 percent commission. Third, we pass those 25 percent savings through to the consumer.
MM commentary: This is the classic Internet advantage personified.
MM: How do you manage your foreign currency exposures?
GD: About 99 percent of what weíre billed is in U.S. dollars. We set U.S. dollar terms at the beginning of the year. They honor the rate for a year. Our partners build in a cushion. If the currency moves significantly, we reset the prices periodically.
MM commentary: They essentially push the currency exchange risk onto their vendors. If these rates move adversely, those relationships could change.
MM: How do you recommend for your customers to manage their foreign currencies?
GD: In some cases, the U.S. dollar carries as much weight as local currencies. Some merchants actually prefer U.S. dollars.
You donít even need foreign currency. You have to know the market rates before you go. We provide that. We tell them to always work with a reputable bank, American Express offices and hotels. You need to get a receipt. Wherever Iíve gone, ATMs give out local currency with American cards. Even in Syria, there are ATMs all over the place and they accept U.S.-based cards.
MM commentary: I disagree about using U.S. dollars in foreign countries (unless thereís no other choice). In most cases, you will get ripped off because of the exchange rate. However, you usually do get the best rates using your ATM card where you can get the Interbank rate.
MM: How has National Geographicís investment affected iExplore?
GD: It was very important. We researched a number of brands that fit in this space. National Geographic is by far the trusted stamp of approval in educating people on geography of the trips we wanted to sell to consumers. It was a logical overlap. We selected them. Getting that brand association for the first five years made a big difference in establishing our name.
MM: Has the investment by George Soros affected how you run your business?
GD: That investment took place in early 2000. In January 2002, we went through a major reorganization. Their stake is small today. They donít have a board seat and they arenít active investors.
MM: To what local causes do you commit $25 of every booking?
GD: It goes into our pool. We apply it to the regions where we sell most of our trips. We look at our best-selling destinations and research the top causes we can contribute to (such as education and the environment). We ask our local ground suppliers, research foundations and the best places to invest.
MM commentary: iExplore is missing a promotional opportunity here to publicize the total dollar amount theyíve donated to foreign causes.
MM: How has being based in Chicago helped and/or hurt you?
GD: I donít think it really matters. Weíre Internet driven and could be anywhere. It did hurt us when we were trying to raise venture capital from early stage investors. I like to think of Chicago more as a conservative second-round city.
Our distribution partners tend to be on the coasts or in San Francisco or New York. The reason I located this business here is that the cost of living is so much lower than in New York where I was living and working. I could find equally qualified people. Thereís a great work base here, too. I came here to start this business for that reason. I could stretch my original investment 30 percent to 40 percent further.
MM commentary: While itís not necessarily good to be known as a destination of cheap labor, at least Chicago has well-qualified cheap labor as compared to the coasts.
MM: How much have you studied international business?
GD: Iíve taken the normal course load in an undergraduate business program. Most of my education was gained on the job. I was at Credit Suisse First Boston in investment banking. We dealt with companies expanding internationally. Iíve got a lot of experience on the job.
MM: Whoís your favorite explorer?
GD: I have a couple who stand out in my mind. The first is Ernest Shackleton in Antarctica. The turmoil was amazing. Read ďEnduranceĒ by Alfed Lansing. Itís the best survival story from an exploration perspective. He was great leader. He got all 28 of his men to survive 18 months years in Antarctica. It was a case study in leadership.
Henry Stanley is my favorite explorer. He had wanderlust for learning new things. He was based in America following the Indians in the west. He was reassigned to the Middle East and Asia. When he was lost, he found himself in the middle of tribal Africa like a needle in a haystack in the late 1800s. He had a fascinating history.
The best planner was Roald Amundsen (the first person to the South Pole). He had a four-week lag and surpassed his rival, Cook, by three weeks.
It came down to logistics and planning. They had unbelievable execution. No one was injured or killed. The whole team came back and everyone on Cookís team died. Antarctica is one of our top 10 best sellers. Though I havenít been there yet, itís on my list. Youíre either there for a three-hour fly-in or on a cruise that takes two weeks. I want to do Patagonia at the same time, which means youíre looking at four weeks.
MM: What foreign languages do you speak?
GD: I learned Spanish in high school and can fake it when Iím in a Spanish-speaking country.
MM: How has that helped or hurt you?
GD: Itís hasnít really hurt me. Everywhere Iíve traveled (and thatís 40 different countries), you can converse with most everyone in English. Theyíve learned English as a second language. I canít think of any place I havenít been able to converse.
MM commentary: In the travel universe, many foreigners do speak English. Still, there are many instances Iíve encountered where many people donít speak English in both developed and less-developed countries. Donít be deceived into thinking thereís no benefit in learning the foreign language of the country youíre visiting. There is.
MM: What are your greatest international problems?
GD: First, foreign currencies wreak havoc in terms of retail prices as they fluctuate. There are major movements that affect demand. Second, world events, terrorism, SARS and the avian flu wreak havoc on what people want to do with their vacations. They either transfer to domestic trips or pick safer destinations out of harmís way.
MM commentary: Foreign currency fluctuations underlie all international business. Until we have one world currency, we will continue to create opportunities and problems. World events disrupt not only travel but lots of other international business things as well (such as shipping and currency flows).
MM: What do you see as the best international opportunities?
GD: We have benefited from the move online, which continues to accelerate. Some $60 billion of the $250 billion travel industry has been generated online in the last 10 years and is forecast to get to $125 billion by 2010. Thatís a 50 percent share in 15 years. Thatís huge movement. That same trend will happen overseas. Being the first mover will help.
MM commentary: Though the U.S. doesnít actually lead the world in online penetration, we do lead the world in creating the infrastructure for the Internet. Bringing that to the rest of the world creates huge opportunities for us.
Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at email@example.com.
Click here for Muthís full biography.
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