2007 Consumer Internet Predictions

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 companies‘ revenues 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)