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Predictions from Lightspeed in the areas of Consumer Internet, Mobile, Cleantech and Enterprise
Once again, Lightspeed is going to go on record and make some predictions for 2010, in the areas of Consumer Internet, Mobile, Cleantech and Enterprise. I am leading off with our 2010 Consumer Internet Predictions, with my partners posting the other predictions coming over the course of the next week or so at the Lightspeed Blog.
This is the fourth year that I’ve been making predictions for the consumer internet.
First, let’s take a look at how I did on my predictions for 2009:
1. Consumers seek cheap thrills
Grade: A. I predicted an increase in time spent on social networks and on games. In fact, social games have been the breakout story of 2009.
2. Trading real money for virtual goods
Grade: A. Virtual goods has been the business model powering the growth of social games.
3. Web 2.0 leaders pull further away from the pack
Grade: B. Facebook has reached cashflow positive on huge revenue growth, but other web 2.0 leaders like imeem and ilike have had a bumpier ride.
4. Online ad prices continue to fall, alternatives help make up some of the ground
Grade: B. CPMs have continued to fall and behavioral targeting, the best hope for arresting the slide, is under a cloud from the FTC.
5. Getting serious about monetizing non-U.S. traffic
Grade: C. Most attention is still focused on the US.
Overall a B+ average – that’s not too bad! Now on to new predictions:
1. Social games overflow out of Facebook.
I’ve said before that I think that social gaming is a tactic, not a category. 2009 was the year that social games overran Facebook (17 of the top 20 Facebook apps by DAU are games as of Nov. 23rd). I think that in 2010, they will overflow Facebook and spill into the open web.
We’ve seen the first indications of this with the launch of farmville.com recently. But Playfish was the first to take a game from Facebook to the open web when they launched petsociety.com in May. And companies like Bigpoint and Gameforge have been launching similar games on the open web for years.
Games optimized for Facebook will need to be modified to work well on the open web. Some of the elements of serendipitous discovery, such as the feed, will be lost, but the ability to use email and IM without any “platform rules” restricting communication channels may offer new channels for growth.
2. Brand advertising starts to move online, boosting premium display, video and social media
The cyclical downturn in advertising made 2009 a tough year for publishers. But, there were some real bright spots amid the darkness. The most promising trend is that brand advertisers are shifting their advertising dollars from offline to online. This is finally following the audience that started shifting several years ago.
The first wave of online advertising was dominated by direct response advertisers. The Internet promised measurability, and direct response was the easiest thing to measure. Brand advertising lift was not so easily measured by click through rate. However, measurement tools from companies like Vizu are improving and allowing brand advertisers to see the lift that an online campaign can deliver in key metrics like brand favorability and intent to buy. Big brand advertiers who will not see transactions consumated online, from Consumer Packaged Goods to Quick Service Restaurants to Big Box Retailers, are spending 10s and even 100s of millions on digital media. This money is starting to flow to publishers and networks with premium display inventory that truly understand the needs of brand advertisers. These needs are quite different from the needs of direct response advertisers, and include safe content, brand metric measurement, real reach and frequency measurement, and guaranteed delivery across a campaign. Ad networks like brand.net, Collective, Specific and Undertone have been riding this wave.
Video content also lends itself to brand advertising because it allows the repurposing of 30- second TV commercials. Video ad networks like BBE, Tremor, YuMe and Brightroll have all benefited from TV ad dollars moving online, following users who are increasing watching their video online.
Social media sites are taking a different path towards capturing these brand dollars. They use integrations and take advantage of the native behavior on social media. Users affiliate themselves with the brands that they like, and implicitly recommend them to their peers. Facebook and MySpace continue to dominate in this category, but companies like Rockyou (a Lightspeed portfolio company) are also winning meaningful campaigns from brand advertisers.
3. Direct Response Advertising becomes ever more efficient
Whereas only 5% of brand advertising is now spent online, around 30% of direct response is spent online. With this volume comes experience and improvement. Direct marketing online is now very sophisticated. Additionally, the ever increasing volume of available advertising online inventory, driven by social media, means that there is always an oversupply. But various flavors of targeting, including demographic, behavioral and contextual targeting, are helping direct marketers to more efficiently reach their target customers. While the FTC may limit behavioral targeting in the future, the trend still favors direct marketers, who are able to acquire customers relatively inexpensively.
I expect this trend to continue through at least the end of 2010, with no near term pressure on advertising pricing. This will continue to favor direct response advertisers who will enjoy relatively low customer acquisition costs. Companies who realize a long lifetime of value from their customers (e.g. gaming companies like Playdom – a Lightspeed portfolio company, subscription businesses like Zoosk and ecommerce companies with a profile for repeat purchase like Gilt) will continue to be able to acquire fully valued customers at a discount in 2010, just as they did in 2009. Other direct response advertisers who realize one-time value (e.g. lead gen, big ticket ecommerce) can also do well, depending on the rate of rebound in demand for their products.
4. Finding Money and Saving Money online
Although the recession is officially over, unemployment is expected to continue to climb and consumer confidence about the current situation is still at historical lows.
Many consumer are looking online to save money, or to find money.
Discount ecommerce, whether in the form of discount shopping clubs like Gilt, Ruelala and Hautelook, single SKU sales like woot, or pay to bid auctions like bigdeal, swoopo or gobid, are all likely to see growth this year. Coupon and discount code sites, like retailmenot and savings.com, will also continue to do well. Local savings like Groupon and Living Social Deals are also showing real growth.
Finding money is harder than saving money. But there are a number of businesses that have helped consumer find sources of cash that they didn’t realize they had. Cash4Gold is the highest profile of these given its Superbowl ad earlier this year, and traffic has continued to grow for that site:
Online payday lending companies like payday one, peer to peer lending companies like prosper and lending club and reverse mortgage companies like golden gateway are all helping consumers to get access to more money. I expect further innovation in helping people find additional sources of cash.
5. Real-time Web usage outpaces business models
2009 was the year that Twitter really entered the public consciousness. But it isn’t just Twitter that is behind the rise of the real time web. Companies like Aardvark, Four Square, Gowalla and of course Facebook are driving real time content, including location info, and companies like bit.ly, oneriot and collecta are all trying to organize and make sense of the this data.
I expect this trend to continue in 2010. Real time information puts a new spin on categories like user generated content, news, vertical search, local information and Q&A. Unfortunately, these categories have been some of the hardest to monetize.
UGC and news are relatively low CPM categories, and real time is unlikely to change that. Vertical search has shown some success in transactional categories (e.g. travel, shopping) where there is an opportunity to buy traffic and arbitrage, but has not been nearly as successful in content categories (e.g. video search, picture search). Many of the early real time search engines are more focused on content than transactions. Local information has historically been a difficult business. It is an area where there is high demand for content, but cost of sales have been very high. The most successful companies in local have innovated on their sales model rather than on their content generation model. Real-time location info sounds more like a content innovation than a sales model innovation.
Q&A is one area where there may be some real opportunity. In general search, around 30% of queries are transactional, and hence monetizatable. Some real time and mobile Q&A sites are reporting that for them, an even higher proportion of their queries are monetizable (e.g. “Whats the camera for low light?”, “Where can I get a good pizza late night in Noe Valley?”). If this remains true, and if mobile is a key driver of real-time search, then there could be real promise in this use case.
This time next year, we’ll get to look back and see how accurate my 2010 predictions were. I’m hoping for another B+ or better.
Stay tuned for the rest of our predictions over the course of the next week or so at the Lightspeed Blog.
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