Why dot-coms need auditing standards

Dot-coms are valued on the basis of their subscription base – so why is there no auditing standard verifying the quality of their databases?

The recent unsubstantiated allegations about Scoot.com’s subscriber numbers have drawn attention to the need for proper auditing standards to be applied to database quality and quantity. The need for reassurance about this part of a company’s equity among private investors, institutions and trade buyers is vital. Projections of future earnings, and hence share prices and company valuations, are based on subscriber numbers.

Yet, surprisingly, nobody has assumed responsibility for this function. Scoot.com’s auditors, KPMG, claimed its role was only to look at the financial accounts. Is there not an opportunity, therefore, for our own ABC//electronic and BPA to fulfil a broader role?

Rather than focusing on the academically interesting but commercially less relevant task of auditing Websites’ total monthly impression delivery, UK media auditors could offer the kitemark against which businesses’ claims about their subscriber base could be judged.

The issue is not merely about numbers. The industry requires a standard view of what constitutes a customer database. Self-evidently, a database can be a list of names and e-mails, but such data isn’t useful in judging a company’s future viability and estimating its worth. It is imperative for the industry to standardise its definitions of database fields and to value these accordingly.

We are a long way off from Internet companies routinely providing information such as online consumer history and analysis of consumer behaviour on sites. It is odd that this rarely happens in an industry which has the inherent attributes required to provide such data.

The truth is, it has been in nobody’s interest to be too precise. The venture capitalists, who are providing much of the financial fuel of the dot-com phenomenon, are the last group of people to demand precision. We are, however, on the verge of a market which will be funded by real shareholders putting up real cash, not swaps of paper, and demanding ultimately to know where the returns are. At that stage, real companies with real customers will triumph in their definition of what constitutes “a customer”.

Auditing in new media has been analogous to greyhounds chasing, but never quite catching, the hare. By focusing on subscriber and database auditing, the profession has the chance to play a real role in developing the medium.

Paul Simon is commercial and marketing director of Independent Digital UK.

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