Guardian Unlimited | Netnews | How to make a Fortune on the quiet

Oh dear, I thought to myself, not another one of those. How many page impressions does your site get each month, I asked, to keep the conversation going. I thought he said 600 and I replied: "Six hundred?"

"Yes," he said."Six hundred... six hundred million."

"Six hundred million?" I gasped. "Hang on, that would would put you up in the global league." (Lastminute.com, forcomparison, had 38 million page impressions in October.)

"Yes," replied Caller, European commercial director, for the company in question, FortuneCity. He added that it was the 11th most popular web site in the world, according to the authoritative Media Metrix ratings for August.

I later checked this out and confirmed that FortuneCity was indeed ranked number 11 in the world, putting it at the top end of the web's Premier Division - behind the likes of Microsoft, AOL and Yahoo, but only one place behind Amazon and three places ahead of eBay, the very successful net auction house. According to Media Metrix, FortuneCity had 15.3 million unique users in August.

Not bad for a company started less than four years ago by five people in a back room off Kensington High Street in London, close to an alleyway occupied by tramps. FortuneCity's core product is free web building space, which comes with 100MB of free storage for each user. It earns its revenue mainly from banner adverts.

In contrast to the millions of pounds spent on promotion by the likes of Lastminute.com and Boo, it has got where it has with little advertising - and no one seems to know when an article was last written about it. They think it was about two years ago.

Caller, who got his job in response to a tiny advertisement in Media Guardian, admits: "To some extent we have been successful in spite of ourselves". You can say that again.

Peter Macnee, president and CEO, says: "I guess we are the least known big internet company in the world. I'm proud of it. There are a lot of small, unsuccessful, internet companies that everyone knows about... In the last couple of years there have been a lot of internet companies that spent a majority of their time on public relations campaigns. They were the poster boys of the good times and now they are the poster boys of the bad times. We are better off putting our resources towards building a good business. I'm happy that we are not the poster boys of the bad times and that we are not used as an example of the death of the dot.com age."

FortuneCity was started by Dan Metcalfe who, inspired by the success of the US web-building company Geocities, started a UK variant. The company enabled users to build their own web sites, including the facility to build virtual homes and cities and be part of a community with its own elected mayor. Its slogan was: FortuneCity for the people by the people. Dan and his brother Jeremy, who between them have 40% of the shares, are still active on the board even though they brought in professionals such as Macnee, to run the company.

FortuneCity has an eerily quiet London base with pine floors and whitewashed walls at the end of a cul-de-sac in part of the BBC's former Woodstock studios in Shepherds Bush. The official headquarters have been moved to New York to be part of the pioneering US scene.

Following an equity issue on the German (Duer) market, nearly 30% of the shares are now owned by German citizens. The biggest remaining shareholder with 12.5% is Time Warner whose own website was four places behind FortuneCity in August at number 15.

Metcalfe fondly remembers the early days when it was a case of just trying to keep up with the growth. Every time he pressed the "reload" button on his computer he found that two or three more new members had registered - a growth that was soon to be measured in thousands, then millions. In the early days the company shared computer facilities with various small internet service providers and he had to drive the company's computer round to different locations in a Beetle.

The amazing thing about FortuneCity is how has it managed to be so successful with low-key promotion. It has had no advertising at all for the past eight months since the company retrenched and cut staff in the face of the impending downturn in the capital-raising markets - yet it claims that new users have continued to register at around 4,000 a day.

The secret is a combination of "viral" (as in virus) and "guerilla" marketing. Viral marketing is mainly passive - when the message is passed by word of mouth or by email from user to potential user. FortuneCity assists this by feeding one of its properties from another. If someone registers on the FortuneCity site they are offered a V3 domain name and they may then opt for the newsletter, thereby fuelling the organic nature of the business.

V3, acquired by FortuneCity last year, claims to be the world's largest provider of redirect services, personalised website URLs and matching email addresses. FortuneCity also owns Hotgames, the gaming site, and Gelon, a well-regarded Wap company, though none is branded with FortuneCity's name. Gareth Williams, director of European operations, says a lot of users will be using a FortuneCity site without actually knowing it.

Guerilla marketing is highly active. It aims to get FortuneCity's name as high as possible on the internet's search engines because they are the main way people find their way around the web. Alan Mills, known within the company as "king of the search engines", spends nearly all his time engaging in cat-and-mouse tactics with the software engineers employed by the likes of AltaVista, Google and AskJeeves to secure maximum exposure on the web's huge network. A dozen search engines account for 90% of the total traffic.

He demonstrated by getting "Free web pages" and "Free web page" typed into AltaVista's search engine - and FortuneCity emerged in first or second place out of nearly 200,000 references. A similar search on Google put FortuneCity in 10th place out of 765,000 references to free web pages. Part of the strategy, he said, was to get FortuneCity's name in the titles and meta tags which appear near the top of the code behind a web page. But search engines were getting more sophisticated and often weighted sites by the number of other links pointing to your site. "You don't know what criteria they are using, but you can work it out by trial and error. That's my job."

FortuneCity has been spectacularly successful in building a global customer base. It now has almost 20m unique users (compared with 2.2m for lastminute.com, one of the UK's better known sites) and claims to be still expanding by 5% to 10% a month. It has 130 employees including 55 in Europe.

Its market share is stronger the further away it is from the biggest western markets (partly because of its emphasis on local language sites). Its market reach in the UK (measured by the proportion of the internet population using its site a month) is 9.4% and in the US 9.9%. In Germany it is 17.4%, in France 16.8%, in Japan, 15.3%, in Canada 15.7%, in Australia, 12.4% and in Hong Kong a startling 43.2%.

FortuneCity is one of the very few internet companies that has a leading market position in all the main world markets. It is a position that many other web companies can only dream about.

But, as most dot.com companies know to their cost, it is one thing to attract users to your site, especially when you are offering something for nothing, but quite another to convert the user base into revenue and profits. Revenues (mainly from banner advertising) in the first nine months of 2000 increased by 90% over the previous year to $9m. But losses over the same period rose from $14.7m to $32.7m.

The company claims to have taken corrective action. It cut staff by 40% earlier in the year when the climate changed for the worst in the capital markets, and drastically cut its spending on advertising and marketing. It has still got $26m cash in the bank from the $97m it raised when it went public and reckons that its "burn rate" (the rate at which it is losing money raised from investors) is down to $1.2m a month - enough, it is claimed, to see it through until 2002 when it hopes to break even. Peter Mcnee says the company was lucky, or smart enough, to raise capital early on and cut back its operations quicker than others who are now cutting back almost every day. This has left FortuneCity, he says, with enough money to "power through".

Not everyone agrees. Lehman Brothers says that the 40% recovery in FortuneCity's share price on Monday last week (it happened on the day Online was visiting the company!) was "not justified" and is concerned that it has cut its operating expenses to a minimum and that there are very few resources for growth. Lehman adds: "We are becoming increasingly concerned with the deteriorating revenue outlook_ We retain our Underperform rating."

Macnee claims that Lehman's analyst has done little to get to know the business and says that they have given Vitiminic, which has a market capitalisation three to four times larger than FortuneCity's, a better rating despite the fact that its revenues in the third quarter were less than 10% of FortuneCity's. "The reality," he says, "is that the institutional investment community has soured on the vast majority of business-to-business and business-to-consumer businesses."

Although the company is dependent on banner advertising at present, Macnee predicts that advertising in this medium will change dramatically in the next six months with access to broadband advertisers, including technologies like streaming audio and video. "It's going to be much more like a television kind of advertising with interactive capabilities_ before you are able to see the content you are looking for, you may have to sit through a five second commercial instead of a static banner."

He admits this is a bit contrary to FortuneCity's alternative culture, but adds: "I think there is a general rain check going on out there - that the great things that the internet can deliver can't come for free."