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2007 Consumer Internet Predictions January 1, 2007

Posted by jeremyliew in Consumer internet, Digital Media, Ecommerce, Lead gen, startups, web 2.0, widgets.

Happy New Year everyone.

It seems to be the season for consumer internet predictions, so here are mine:

1. Ecommerce 2.0 arrives. Google‘s search revenues continue to grow at 70-80% growth rates. Yet the public ecommerce companiesrevenues are growing at “only” 25-30% at best. But almost every Google click is going to an online transaction somewhere – people still aren’t using search advertising for branding purposes. So what is filling the gap? Some of it is the multichannel retailers coming on strong, Walmart, OfficeMax, etc. But a lot of it is from the next generation of ecommerce companies, still private but doing revenues in the $10s and sometimes $100s of millions that have quietly been growing at 50-100% per year through the last few dark years. Companies like Zappos, Art.com, Mercantila [a Lightspeed portfolio company], Netshops, CSN Stores, Backcountry, Bodybuilding.com, Toolking, US Auto Parts and dozens more have grown up, mostly away from Silicon Valley, and many without the need for venture capital. Those that have taken investments have often been at scale and profitable when they do. Watch this space as the next generation of ecommerce sites ride people’s growing willingness to buy online, use search to acquire new customers and focus on verticals rather than trying to be an all encompassing department store.

2. Social Network widgets find a business model. Pete Cashmore and many others have proclaimed the rise of the widget economy, but there hasn’t been too much money floating around this economy to date. Widgets have been primarily a marketing tool, used to drive traffic to a destination site, with Youtube being the most obviously successful at doing this. Once there, monetizing traffic on your own site is uncontroversial. But few others have been able to build a browsing destination on the back of widgets, which begs the question as to how widgets can be directly monetized where they are embedded, and what sort of revenue splits will be struck between the three relevant parties; widget owner, social networking site, and user. I don’t know the answer to this, but have some ideas (syndicated advertising, sponsorship, micropayments for bling, freemium models etc). I think we’ll see more clarity emerge in ’07.

3. Lead generation breaks into new categories. You rarely see ads for mortgages, online education, new autos, credit cards and other financial services products anymore that don’t lead you to a form to fill out to get free quotes. CPC and CPM banners for these products, as well as search engine ads and optimization, all drive you quickly through a form-fill process so that you can be sold as a lead to vendors of these products. Vendors prefer to pay for leads as it makes their marketing costs much more accountable. I think we’ll see similar principles applied into other categories that also have high customer value, can sustain a sales persons costs, are infrequent purchases by consumers and have complexity in the decision making process. Possibilities include wedding photography, plastic surgery, LASIK, cosmetic dentistry, eldercare, even business purchases.

4. Social Networking finally becomes a feature. I think it will be hard for new broad based social networks to emerge; the existing networks are strong and good and are serving their users reasonably well. But social networking, like message boards, is now getting baked into vertical content sites as a mechanism to help drive user generated content. Yelp uses a core of social networking to incent its Yelp Elite and other core users to write local reviews which then benefit any user of the site. Youtube absolutely uses social networking to reward video contributors. Tripadvisor reviewers get compliments and get told how useful their reviews are, as do Amazon book reviewers. Flickr has always had a core of social networking and profiles for regular photo contributors. Others are doing this in other verticals, including Flixster [a Lightspeed portfolio company] in movies, Kongregate in flash games, and many more. These are not social networking sites per se – they are city guide sites, or video sites, or travel sites, or book sites, or photosites. You can enjoy the specific content without ever joining the network, or even being aware of it, but the social network reward mechanisms are incenting the power users to contribute the content that we all benefit from. Watch this space.

5. News of TV’s death is greatly exaggerated. There is no question that people are watching more video online then before. But a Media Life report from earlier this year suggests that people are acutally watching more TV, not less. It is radio, magazines and newspapers that are suffering the most from increased internet usage. Even if TV usage does decline, don’t expect the massive TV ad budgets to wash into online video right away. Looking back a few decades, you can see how long the lag was between viewers switching from broadcast to cable, and ad dollars following them. Broadcast still commands a premium CPM to cable during prime time in most instances. Look for technologies to emerge that help TV increase their CPMs as viewers start to defect. Spotrunner is a fine example.

6. Software as a Service gets customer facing. When you think SaaS you typically think enterprise applications used by employees. Salesforce.com is the classic example. But increasingly we are seeing websites use customer facing functionality delivered on a SaaS basis. A few lines of javascript on a page gets you behavioural marketing, user reviews, live customer service, or collaborative filtering. Typically, these companies charge the website owner/enterprise a variable usage based fee for their services. Furthermore, the demands on your development staff are relatively low, especially compared to building this functionality yourself. Having run a business, I know that although your wishlist of features is two pages long, you’ll only ever get the first half of the first page done in any given year. SaaS allows you to get some of the lower priority features added quickly and easily without impacting your key focus areas. This will really help level the playing field for smaller publishers and e-tailers who can now add the same functionality that their top tier competitors have been able to build in house. It turns features into companies.

Update: My colleague John Vrionis has added his 2007 Enterprise Technology predictions here

Update II: In response to comments and other events, I’ve posted more on predictions #3 (Lead gen) and #4 (widget business models)


1. Brian Breslin - January 1, 2007

Do you think consumers would latch onto paid SaaS? I haven’t seen a very creative, non-ad supported model for targeting consumer software as a service yet. What about the socialnetworking as a feature? I think some neat stuff can emerge from that space in relation to ecommerce. It really started a long time ago with amazon’s “others who purchased this, also bought xyz” feature.

2. jeremyliew - January 2, 2007

What I meant was that the enterprise would pay for the customer facing functionality which is delivered on a SaaS basis. It would be invisible to the consumer that the feature wasn’t provided directly by the website. I agree with you that consumers won’t pay for it themselves. An example would be Compusa.com’s product review functionality, free to users, and invisibly provided by bazaar voice.

I also agree with you that ecommerce will get the most benefit from this trend

3. Brian Breslin - January 2, 2007

Ahhh, I get what you mean now. Hadn’t thought of stuff like bazaar voice, I was thinking more direct like SaaS to replace tools that consumers use already. Wouldn’t Typepad be Saas for consumers? Free to start, then paid upgrades.

4. jeremyliew - January 2, 2007

Brian, Exactly, Typepad is SaaS for consumers. My prediction is more about enterprises using customer facing SaaS to add functionality. I’ve updated my original post to try to be more clear

5. Redeye VC - January 3, 2007

Newest Venture Blogger

My friend Jeremy Liew at Lightspeed Venture Partners has finally started to blog. And he’s off to a great start. I think his 2007 Consumer Internet Predictions are right on the money. I look forward to hearing more from him…

6. patent-monkey - January 3, 2007

Brian, You highlight a number of fantastic opportunities and we only wish we had more hours in a day to tackle them. Really, the user facing web arena is dynamically changing and your views on branding on the web will be interesting to see play out. In talking to the web industry, it makes a lot of sense, in talking to the ad industry, still not so sure that level of integration is ready for a big pop in 2007.

7. Ben - January 3, 2007


Glad to see you blogging. SaaS and the widgets area are related in some way. Companies are starting to offer services or data or webservices that you can combine into your own consumer site. It is one more thing that is making new companies easier to build in today’s world.

8. Darren Herman - January 3, 2007

Great stuff! I’m a new follower of the blog and have to say, you’re right on target with many of your predictions. Keep on rocking!

9. Craig Danuloff - January 3, 2007

One quibble with #3: “Vendors prefer to pay for leads as it makes their marketing costs much more accountable.” They only prefer to pay and only find it makes their mktg more accountable IF they aren’t good enough to fill their pipelines themselves. Talk to the ‘clients’ of these lead gen firms and you’ll find they quickly realize it’s a drug addition – costs go up and quality goes down but without a replacement they’re hooked. I don’t think you’re wrong that the trend will expand, but more capable online marketing inside of these firms would keep them off the junk to begin with.

10. Lewis Gersh - January 3, 2007


Good calls, especially on #3. One of my portfolio companies, Precision Prospects, is doing highly qualified lead gen with real time fulfillment of educational oriented collateral in both the active retail investing and b2b IT channels. You are spot on about high cost of customer acquisition and complex decision making by the customer translating into accountable marketing needs by the advertiser. Others are moving this direction quickly, though too many on a media arbitrage model (as opposed to affiliate network w/rev share). Healthcare is close to primed for this type of service.

11. Brian Breslin - January 3, 2007

In regards to #3, wouldn’t LinkedIN be in a GREAT position to either do this or facilitate this? do you think #3 falls into the whole affiliate marketing field? essentially those people are just lead generators who know alot about internet traffic. companies like commission junction might want to make it easier for them to tap the small biz or niche verticals like those medical services you mentioned (lasik, etc.)

its tough to convince these folks to put up the collateral ahead of time to fullfill these lead generations. thats a big mindset thing to overcome right there.

12. Doug Miller - January 4, 2007

You’re spot on regarding Saas delivered features. What’s troubling is the resistance to the idea from internal Dev and IT teams who can’t give up on the purity of home-grown features. Or, worse still, a seemingly lack of understanding about what a little java script can do. As a business leader inside a well-established ecommerce site who has championed (and bulldogged) a few of these features into existence, I’d like to find a forum where I can send Dev and IT leaders for information and assurance from their peers (not business-types) that these methods are sound and smart.

13. erik - January 4, 2007

Agreed that Lead Gen is ready to enter other categories. Keep an eye, however, on two evolving elements of this space:

(1) online advertising’s surge has reduced the availability of cheap RON inventory, making media buying for these outfits more expensive, squeezing margins.
(2) The FCC was looking into many lead gen companies mid/late 06 Should provide bit of a clean up – and opportunities for those doing it above board. If interested in a lead gen company, dig deep into their practices vs. FCC evolving rules.

14. langley steinert - January 4, 2007


like your comments on lead generation. Advertisers that used to pay for cpm have become increasingly frugal and see “pay for leads” as the way to go. CPC search advertising is only one manifesation of this trend.

15. DE - January 4, 2007

I look forward to reading Jeremy’s insights. Having worked with him in the past, he is definitely one of the “smart ones” !

16. Reto Meier - January 4, 2007


Where do you see Google positioning itself vs. the vertical providers in owning the customer. Seems if Google Express Checkout takes off and is combined with Google Search, Google Analytics, Google Maps, etc. then Google will own the customer. Are the verticals comfortable with that positioning? What happens to Paypal? Thanks!

17. Jason Calacanis - January 4, 2007

Lead generation is dead. Companies would really be foolish to start a new leadgen company – especially NOW. Geesh.

18. Random Mumblings - January 5, 2007

20 lists of trends for 2007

A collection of predictions for 2007 in no particular order. HipMojo.com: Top 10 Media Trend Predictions for 2007 The Luon Blog: 10 key predictions for 2007 – as read on eMarketer Greg Sterling: Predictions for 2007: Evolution and Acceleration David…

19. jeremyliew - January 5, 2007


I agree with you. Its up to the business side to drive through these sorts of SaaS features as it can run counter to the IT groups mindset. Which features have you found most interesting?

20. jeremyliew - January 5, 2007

Last decade (last century?) everyone worried that Microsoft would crush all businesses. This decade, everyone worries that Google will embrace, extend and destroy. And yet there have been so many companies built in both periods! I wouldn’t lose too much sleep over Google taking over the world.

21. jeremyliew - January 5, 2007

There has been a surprising (to me!) amount of comment activity on the lead gen prediction. I think I’ll do a future post incorporating comments and discussing the matter further

22. 2007 Enterprise Technology Predictions « Lightspeed Venture Partners Blog - January 6, 2007

[…] wanted to follow up on Jeremy’s post earlier this week 2007 Consumer Internet Predictions and share some of my thoughts regarding areas we’ll be watching closely this year. Full […]

23. will - January 6, 2007

Personally, I believe lead generation purely based on search engine arbitrage will go the ways of the dodo in the next 2 years.

1. by definition competition will drive click pricing upwards to equivalent cost per lead

2. if that doesnt happen, and margin remains fat, Google/Yahoo will move down the value chain and “go direct” (this is more believable/easier to implement than a CPAction ad network G has been long rumoured to be building)

Whats does that mean? it means successfull lead gen firms will stop the arbitrage game and build out a direct network of its own . . .

24. E-commerce 2.0? at punctuative! - January 8, 2007

[…] Liew’s posts on Lightspeed Venture Partners’ new blog.  On Jan. 1 he posted six 2007 consumer internet predictions and at the top of the list was “Ecommerce 2.0 arrives“: Google’s search revenues […]

25. Planblog » Blog Archive » 2007: Business models for widgets? - January 8, 2007

[…] his 2007 Consumer Internet Predictions, Jeremy mentions a few more potential options: 2. Social Network widgets find a business model. […]

26. Lead gen is dead. Long live lead gen « Lightspeed Venture Partners Blog - January 8, 2007

[…] shared more detail, and see a troubling situation as the arbitrage opportunities between buying CPC […]

27. Darren Herman - Marketing, Advertising, Media and Technology Blog » Blog Archive » Lightspeed 2007 Predictions - January 9, 2007

[…] post, I’m going to highlight a few of their thoughts from their 2007 predictions that were posted back on January 1, […]

28. Richie Hecker - January 9, 2007

2 cents on lead gen

Lead Generation is a field that has been rife with fraud for years. 2006 saw for the first time the downfall of excel based leads and the rise of real time lead generation. Along those lines lead marketplaces have sprung up so make lead sales more efficient. Root Marketings (root.com) had a ton of funding and tried to make mortgage leads more efficient, it didn’t. LeadPoint.com however is making headways and is becoming the leader in mortgage leads and education leads as well. Eventually most lead gen will move through exchanges that eliminate a lot of the fraud by being transparent. Cosmetic surgery/botox type stuff will take off soon. I have been talking to a number of lead generation companies that are seriously looking into it and I’ve considered it as well. The problem so far is no one has aggregated the buyers together yet, not neccessarily very difficult, just has not happened yet en masse. My 2 cents…

PS i’ve been in the lead gen business for almost 7 years…

Also you left out the rise of niche social networks and automated online advertising platforms (rightmedia.com is taking over remnant inventory) and will blow out the market in 07. Doubleclick and ebay are both coming out with systems as well. Also, look for mediarfp.com to make headways.

Richie Hecker
Chief BootStrapper, http://www.bootstrapper.com

29. David Armstrong - January 10, 2007

9 days late….but the more I watch offline consumer behavior, I think more people will move online to accomplish it. People are starting to treat their PC and broadband as more of an appliance. We will see the need for regular services for regular people, instead of over-technical approaches to solving pain. These services have put an accidental cap with poor design and usability. They’ll miss the mass move to usage beyond email and ebay.

30. Search Engine Marketing - January 19, 2007

David… that is very much a fact now. I agree!

31. Stickiing around - February 1, 2007

We’re excited to invest in Flixster! « Lightspeed Venture Partners Blog

As we’ve posted in the past, we’re big believers that this year social networking becomes a feature, a mechanism used to incent users to create content that will be of broad interest to many other users. We think that this is most interesting arou…

32. Mark Tomin - February 18, 2007

I agree with David. Access to applications over the internet (ie xserver) or web-based applications might have a wider use this year as well.

Bandwidth Buyers Guide

33. Whither widgets? « Lightspeed Venture Partners Blog - April 30, 2007

[…] models for widgets. I don’t pretend to have the answer to this, although I did note in my earlier post on 2007 Consumer Internet predictions that this would be the year that social networks would find a business […]

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[…] models, facebook, media, myspace, social media, social networks, widgets. trackback One of my consumer internet predictions for 2007 was that social network widgets would find a business model. There are a number of conferences […]

35. john - October 28, 2007

my prediction is DSL and T1 is here to stay. I just hope it gets more competitive so prices go down. High speed companies are in full force right now such as http://best-t1-line.com bc it is getting really competitive.

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[…] media, social networks, structure, user generated content, video. trackback Last year I made some predictions about the consumer internet in 2007 and they were at least directionally correct. So let me take a crack at 2008. Regular readers will […]

37. Nättrender för 2008 « Digiton - December 13, 2007
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[…] 2009, Consumer internet, Internet, games, games 2.0, gaming, predictions. trackback For the last two years I’ve been making predictions about the consumer internet, and this year is no […]

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