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Google’s three new patents to improve targeting in social media December 15, 2008

Posted by jeremyliew in advertising, google, social media, social networks.

IEEE Spectrum notes three new patent applications from Google that suggest how Google hopes to improve targeting for social media advertising:

The patents—Open Profile Content Identification, Custodian Based Content Identification, and Related Entity Content Identification—and the algorithms behind them would let Google find patterns in users’ profiles, pages, and friend lists in order to better target ads to them. Ideally, they would make the users more likely to click through.

Google’s Related Entity patent, for one, involves prying information from a user’s list of friends or user groups. But Google is not alone in this field. In June the social ad firm SocialMedia Networks said it had invented an algorithm called FriendRank that also scours a user’s friendship lists for friends whose names might be dropped in a targeted ad.

The Open Profile and Custodian patents would mine data from, say, a MySpace user’s profile and the profile of the MySpace page the user is visiting. The Open Profile patent, for instance, would consider a user profile like “I really enjoy hiking, especially long hikes when you can camp out for a few days. Indoor activities don’t interest me at all, and I really don’t like boring outdoor activities like gardening.”

Using smart language-processing algorithms to detect the user’s sentiments (“enjoy” or “don’t like” near “hiking” or “gardening”) and other linguistic cues, the system would then potentially serve up active outdoor sports-related ads to this user but avoid ads about more hobbyist-oriented activities.

Google is continuing to apply the adsense paradigm of contextual targeting, but expanding the definition of “context” to include the friend networks and the declarations of interests that are common to social network profile pages. MySpace’s hypertargeting is a similar approach.

Facebook’s engagement ads are a markedly different approach, charging for actions rather than using targeting to lift CPMs within display advertising. I think engagement ads could be a very interesting approach that takes advantage of the native behavior of “user affiliation” withing social networks.

I’m indifferent to which standard wins, but I do want a standard to emerge. We need a standard in social media advertising to unlock further scalable growth in this industry.

Display advertising generates demand; search advertising fulfills demand December 14, 2008

Posted by jeremyliew in advertising.

I’ve been meaning to write up a summary of the new Comscore whitepaper, Whither the Click?, which outlines the findings of their research on the effectiveness of display advertising. But as Fred Wilson did an excellent job, I’d suggest that readers just read that.

The punchline is that display advertising meaningfully increased the likelihood of internet users who saw that ad search for the product advertised, visit the product’s website, and buy the product advertised over the four week period following exposure:

It’s clear that display advertising, despite a lack of clicks, can have a significant positive impact on:
– Visitation to the advertiser’s Web site (lift of at least 46% over a four week period)
– The likelihood of consumers conducting a search query using the advertiser’s branded terms (a lift of at least 38% over a four week period)
– Consumers’ likelihood of buying the advertised brand online (an average 27% lift in online sales)
– Consumers’ likelihood of buying at the advertiser’s retail store (an average lift of 17%)

This is pretty stunning news. It means that banner advertising actually GENERATES demand for a product (by increasing search and visits to a website over a control group).

Read Fred Wilson’s summary of why display advertising works.

Consumer Internet Predictions for 2009 December 11, 2008

Posted by jeremyliew in 2009, Consumer internet, games, games 2.0, gaming, Internet, predictions.

For the last two years I’ve been making predictions about the consumer internet, and this year is no exception.

First let’s take a look at how I did on last years predictions:

1. Social Media advertising, Online Video advertising and In-Game advertising start to become scalable.

Grade: B-. We’re seeing much greater scale on social media and online video advertising, with a standard emerging for online video, and movement towards a standard for social networks. In-game saw some progress but not as much.

2. Structured web emerges.

Grade: C. Notwithstanding the Powerset acquisition, the structured/semantic web hasn’t been a real theme for 2008.

3. Games 2.0

Grade: A. This year was a breakout year for social networking games, web based games and free to play games. I see this growth driving several of next years predictions as well, as you’ll see below.

Now on to new predictions. Note that the remainder of this article is cross posted at the Wall Street Journal.

Last year, consumer Internet startups sprung up left and right, looking for U.S. traffic growth and relying on the robust growth of the advertising market to make money. We enter 2009 looking down the barrel of a recession. In this environment, I predict the following trends for consumer Internet companies:

1. Consumers seek cheap thrills

Even in a recession, people will still want to be entertained. The Great Depression saw resilience and even growth in movie ticket sales as one of the cheapest ways for people to entertain themselves. As this economy tightens through 2009, we’ll find growing numbers of “time rich-cash poor” consumers seeking today’s lowest cost methods to entertain themselves. In general, this will benefit two categories of consumer Internet companies.

First, social media and social networks. These are free and endlessly entertaining. As mainstream media companies cut costs, the relative value and quality of user generated content increases. MySpace, YouTube and Facebook all rank in the top 10 Web sites by aggregate time spent according to comScore. The most popular applications on Facebook and MySpace are all games, entertainment and lightweight communication, and these can provide endless hours of entertainment for users. It isn’t just Facebook and MySpace that will benefit though. Smaller social media sites that have built enough of a critical mass to have a self sustaining community will also see growing usage over the next year.

Second, games. Games are one of the most cost effective means of entertainment available. While a $10 movie ticket can provide 90 minutes of entertainment, a $60 computer game can easily provide 50-100 hours of entertainment. Free-to-play web based games make this math even more compelling, whether they be casual game portals like Pogo, virtual worlds like Gaia or massively multiplayer games like Runescape. The Web site with the highest amount of time spent per visitor in October was Pogo.com with 444 minutes/visitor. Number two was Yahoo, with just 291 minutes/visitor in the same period. Games in general, and free games in particular, can provide a lot of cheap thrills.

2. Trading real money for virtual goods

In Asia people have been paying real money for virtual goods for years. It is the primary business model for games and Internet companies in China and Korea, far more important that advertising. We’re starting to see similar behavior in the U.S., also led here by online games and social networks. On the back of the rise of social networks and games, 2009 will be the first real breakout year for this business model in the US.

To people who do not spend time on social networks, it seems crazy that people would pay real money to buy each other virtual gifts – pictures of things ranging from birthday cakes to hugging penguins – and then display them on their profile pages. But estimates peg Facebook’s digital gifts sales in the $35 million – 50 million range this year. As more human interaction moves online, these social tokens of appreciation move online in parallel.

In the same way, gamers are more than willing to buy virtual goods In 2007, Nexon made $30 million selling virtual goods to U.S. players of their games. These items either allow players extra powers in the game (e.g a bigger gun), or allow players to customize the way that their character looks (e.g. cool sunglasses). People want to win, and they want to look good doing it. Dozens of other games companies are now employing this model in the U.S.

Why would this recession be a time for virtual goods to take off in the U.S.? It actually has nothing to do with the economy, Rather, two new payment mechanisms are becoming available now that allow gamers, many young and without credit cards, to play these games to their full capacity. The first is that prepaid game cards are now being sold at retail, with Target leading the charge. The second is incentive marketing. If a player take an action (like signing up for a ring tone service, or completing a survey) the advertiser who benefits will fund the purchase of that players desired virtual goods. One virtual world company, Gaia, used to have three full time employees who did nothing but open envelopes of cash that their teen and ‘tween players sent them to buy virtual goods. Since rolling out their new payment mechanisms, their revenues have doubled and they no longer have to open envelopes full of pocket money.

Asia and Europe have led the US in the adoption of free to play games because they have had good alternative payment mechanisms in place for longer, including mobile payments and credits available for sale at internet cafes. Now the U.S. is ready to catch up.

3. Web 2.0 leaders pull further away from the pack

In a recession, when advertising budgets are cut, there is a flight to quality among advertisers. Size and “brand name” are good proxies for quality. Advertisers will want to buy advertising on big, well known websites. The big online media companies like Yahoo and AOL will benefit from this. However, they are already so big that they cannot escape the overall shrinkage of ad budgets.

On the other hand, many Web 2.0 companies, like Facebook and Digg, have build large user bases but have not yet built out their capacity to monetize their traffic. These companies will see the benefit of the advertiser flight to quality. However, as they are only now building out their sales forces, they will likely continue to see strong revenue growth in 2009.

4. Online ad prices continue to fall, alternatives help make up some of the ground

The Internet advertising market, like all markets, responds to changes in supply and demand. In the current recession, demand for advertising is likely to decrease. At the same time, supply of online inventory, page views, is continuing to increase. Social networks and other social media sites in particular are creating masses of new inventory. As a result, the price of online advertising will continue to fall in 2009.

Targeting may mitigate some of this fall. Better targeting is steadily improving the effectiveness of direct response advertising (the equivalent of TV infomercials). This targeting takes many forms, but all have demonstrated an ability to lift conversion rates over “run of network” advertising. As targeting technology improves, and as the data that publishers and networks collect about users increases in quantity and quality, we will see a better ability to match the right ad to the right person, and charge more for that ad.

5. Getting serious about monetizing non U.S. traffic

The U.S. led the way on the internet, and for a long time the U.S. dominated overall Internet usage. In the past couple of years this situation has changed. China passed the U.S. as the country with the most internet users this year. Top sites like Yahoo, MSN, Facebook and MySpace all have more users internationally than in the US. Serving an international user costs the same as serving a U.S. user, but making money from an international user is much harder. In 2009, I expect Internet companies to get serious about making money from their international traffic.

The US market represents about half of all online advertising, which is partly what makes monetizing international traffic so difficult. Building up direct ad sales teams (and networks) internationally will partially help to bridge the gap, but this will not be enough. As noted previously, in Asia direct monetization models (i.e. selling things directly to users) have proven to be a better business model than advertising. U.S. companies will need to understand and embrace the direct monetization models that have worked well overseas, principally mobile monetization, premium subscriptions models and digital goods models based on selling greater functionality, scarcity or status.

Silver linings to dark clouds

These trends will benefit some internet companies but disadvantage others. I hope that your company finds the right way to navigate these shifting shoals. Let me know if you agree or disagree with these predictions, or if there are other trends that you think I’ve missed.

Mobile Predictions For 2009 December 9, 2008

Posted by jseid in 2009, mobile, predictions.

Despite the troubles in the economy, the mobile industry is as dynamic as it has ever been.  The changing landscape creates significant opportunities for entrepreneurs and should deliver exciting products and services to the consumer.

Here are our predictions for what’s to come in mobile in 2009:

1. The iPhone’s impact is not directly due to iPhone usage.

With all the buzz around the iPhone and its great stats, people might question this. However, I think 2009 will show that it’s not iPhone usage that will have the greatest impact on mobile but the wave of iPhone/appstore-like offerings being created by Apple’s competitors. Apple showed the device manfuacturers that sell the vast majority of the world’s phones how to rethink the phone from the ground up to make sense for data and apps and that will be the iPhone’s biggest impact on the industry in 2009.

A number of other large players like Google/HTC, RIM, Samsung, LG and Nokia are each coming to market with multiple offerings that have large high-res touch screens and in several important cases app stores that facilitate mobile content discovery and payments. The number of iPhone-like products by the end of 2009 should outnumber the iPhone. Despite the down economy and people watching their pocketbooks, expect the growth of these more expensive smart phones to be a real bright spot for the mobile industry. Choice and competition is a great thing for consumers.

2. 3G networks break.

Well, what else would you expect with all those iPhones and iPhone-like phones out there? These networks were designed for voice not for data and the stress placed on these networks with this new generation of phones will be significant. Areas that will continue to see innovation will include the access part of the network which will make use of intelligent smaller cells and which will leverage wifi where possible. The backhaul portion of the network will also be ripe for innovation. In a year where telecom spending is likely to go down, we would expect spending on key stress points like backhaul to continue to grow.

3. Mobile app/wap business models are put through the crucible.

There have been a number of mobile app/wap startups funded over the last few years and 2009 will be the crucible test for their business models. I can’t predict which business model will win but I can predict that the winners will be the companies that have the capability to rapidly evolve and test different business models in order to move down the learning curve as quickly as possible. Unlike in the web world, mobile startups will have to think creatively about their business models given the complex ecosystem of carriers and phone vendors and will also have to understand from day one how their business model maps to geographies outside of the US.

All this change will create a lot of opportunity for the right mobile startups.

Tradional media companies are unlikely to be buyers of consumer internet companies for a while December 8, 2008

Posted by jeremyliew in Consumer internet, M&A.

Over the last few years TV and Print publishing companies have been acquiring internet companies and providing the primary source of exits as IPOs have been few and far between. Exits have included MySpace and CNet on the top end to last.fm and Plaxo in the middle and Kaboodle and LX.TV on the smaller side.

It looks like there will be fewer such exits in 2009. The major newspaper companies are in trouble (including Tribune and NY Times) with their debt loads which will make acquisitions difficult for them.

It isn’t any better on the TV side. PaidContent reports from UBS Media Week that Viacom has no acquisition plans for a while:

Viacom President & CEO Philippe Dauman told attendees … that the company is focused on organic growth and tended to avoid acquisitions for the past two years… “We have plenty to do in-house; we don’t have to look outside at this point,” he said.

and that NBC is pulling back from M&A.

Zucker added, “ In the 18 months prior to September, I don’t think there was any major media company more active in M&A.” As for pulling back now, “I don’t think that says anything about us more than it says about anybody. We’re in a different time. We’ve got our portfolio.” (I asked Zucker after the session if he had any spending range this for acquisitions—for instance, $50 million dollars might be ok even though nine figures is out. He said no. He also said the company is likely to do more partnerships.)

Fox/Myspace is looking for deals, but only if they’re cheap notes Alley Insider:

MySpace (NWS) CEO Chris DeWolfe told a Reuters conference closed to outside reporters:

DeWolfe said companies worth between $200 million and $300 million just six months ago are now running out of money and willing to sell themselves for less than one-tenth of that value.

But he’s not ready to buy just yet — we still haven’t hit bottom.

“At the lower levels the money dries up, everyone’s looking for some kind of exit and the valuations we’re seeing out there are definitely a small, small fraction of what they were even five or six months ago,” he said, adding that he expects these companies to become even cheaper in the next few months.

IAC takes the same position:

Diller told Reuters Media Summit attendees that IAC would have $2.2 billion in cash by March, and it’s a good chance to add new properties to his empire.

Reuters: “This downturn is going to present opportunities if you’re in the position that we’re in,” he said, citing entertainment, media and search as areas of interest.

“In entertainment and media, I think there’s going to be a ‘cascade’ of acquisition opportunities,” he said, referring to his expectation that the downturn would worsen.

Diller said he would be interested in acquisitions in search, but not to acquire technology.

“The interest would be on audience, we would acquire audience absolutely. We would acquire vertical audiences as we acquired with Dictionary.com, Thesauraus.com,” he said.

Internet startups looking for a big exit will need to keep their heads down and focus on building audience and revenues for the foreseeable future.

Enterprise Infrastructure Predictions for 2009 December 5, 2008

Posted by John Vrionis in Cloud Computing, datacenter, enterprise infrastructure, Uncategorized.

Barry Eggers and I teamed up again this year to make a few predictions about major trends to watch out for in Enterprise Infrastructure in 2009. But before we get into what we’re seeing in our crystal balls, we thought we should grade our 2008 Enterprise Infrastructure Predictions:

1. Flash-based storage makes a move towards the datacenter: A-

While 2008 was not “the year of the enterprise flash drive” as we suggested it might be, market momentum is clearly building. EMC and Sun announced enterprise storage offerings that incorporate flash drives. IBM and Dell have publicly declared their interests. Activity among private companies, including subsystems and systems companies, continues to increase.

2. Virtualization extends to the desktop: C

The big guys decided to supplement “make” with “buy” – MSFT bought Calista (a Lightspeed company) and Kidaro, VMWR purchased Thinstall. However, the market has been slower to develop than we initially predicted, and with big IT budgets constrained in 2009, we expect this market to slip into 2010 and beyond.

3. The Battle for the Top of the Rack (TOR) heats up: B+

CSCO and VMWR have decided to play nice for the time being, but there is a line of private companies that will battle CSCO in the near future, including high density 10G switching players like Arista (with a formidable team lead by ex-CSCO Jayshree Ullal and Andy B), Woven (lead by Ex-3COM exec Jeff Thurmond) and the I/O virtualization guys Aprius (a Lightspeed company), 3Leaf, and Xsigo. It’s still CSCO’s market to lose, but don’t count the private guys out.

And now, for the 2009 Enterprise Infrastructure Predictions:

It will, no doubt, be a challenging year for enterprise infrastructure, as with other sectors. The enterprise focus on green 2.0 (reduced energy usage) may be temporarily replaced by a focus on green 1.0 (as in money, reduced expenses, increased revenues, and short ROI periods). Despite the challenges, we do see some innovative ideas gaining traction:

1. Internal and external enterprise class clouds building momentum:

VMware is hyping its Datacenter OS and vCloud initiatives. IBM, MSFT, Sun, and HP have all indicated their enterprise class offerings will be ready for prime time in 2009. Expect increased marketing muscle touting key features – reliability, performance, security, SLAs – as differentiators (vs Amazon, Google and each other). We expect to see leading private companies emerge that are offering innovative software which enables enterprise customers to take the leap and benefit from the economic advantages of the enterprise cloud.

2. Hybrid Storage solutions gain mindshare with enterprise customers:

Given the growing trend of using flash storage in the Enterprise datacenter, expect to see an increase in innovative “Hybrid” solutions that combine flash storage with good old fashioned rotating disk drives. In these systems, the flash storage provides the “turbo” performance for apps that require it, while the rotating disks provide large amounts of inexpensive storage capacity for less demanding apps. Taken together, these hybrid systems aim to significantly reduce the total cost of storage while increasing performance and capacity.

3. The rise of serverless computing – two trends collide:

Hypervisors have made servers more efficient, allowing them to run multiple applications concurrently on the same system. In parallel, we have seen a monumental shift towards enterprise infrastructure apps, such as storage, security, and networking, running on standard servers (ie appliances) instead of proprietary hardware. Taking the two trends together, in 2009, we will see multiple appliances combined onto a common physical platform. More importantly, we will see enterprise infrastructure apps and compute apps combined into a common server platform within the datacenter. The computing vendors will view this as a way to offer and control enterprise applications. The enterprise application providers will view it as a way to do “serverless computing”. Either way, the customer wins. Less physical servers means lower upfront capex and lower TCO.

4. GPU computing starts getting serious attention (again):

Nvidia continues to develop and improve the interface to its GPUs which have hundreds of processing cores. The tantalizing possibilities for cost savings and application acceleration will drive further investigation into the possibilities of using GPUs for mainstream computing (despite previous hiccups from some venture backed companies). There are significant programming model obstacles to overcome, but we prefer to view that as the opportunity. Perhaps one of the Cloud providers will over GPU clusters as a high end service. What do you think Amazon?

The Supreme Court ruling means that you pay more for things you buy online December 4, 2008

Posted by jeremyliew in Ecommerce, MAP, pricing.

Amazon launched on the back of its discount pricing of books and music, and changed an industry. Blue Nile (my partner Peter Nieh led an investment in Blue Nile) built a business and a brand on better pricing for diamond engagement rings. Price has always been one of the key value propositions for ecommerce.

However, a supreme court ruling last year could level out price competition and force etailers to compete on other dimensions. Notes Internet Retailer:

Just as millions of consumers are turning to the web to find the lowest prices, online retailers in many categories find they no longer can compete on price. That’s because a growing number of manufacturers are setting minimum prices on their goods, and in some cases cutting off retailers who sell below those prices.

They are taking advantage of a June 2007 U.S. Supreme Court decision known as Leegin Creative Leather Products Inc. vs. PSKS Inc. that gives greater legal protection to such minimum pricing policies…

…many online retailers are finding suppliers mandating minimum prices, particularly on higher-priced goods with strong brands. But manufacturers’ enforcement of these policies—often referred to as MAP, for minimum advertised price—has been uneven. Many online retailers complain that, while they abide by MAP pricing, their competitors do not.

Business abhors a vacuum, and the WSJ notes that some companies have sprung up to help manufacturers monitor for Minimum Advertised Price (MAP) violations where etailers sell at a discount:

Tiny firms like NetEnforcers Inc. — with only 56 staffers jammed into a dim, spare cubicle farm here in Arizona — wield economic power far beyond their size. These companies scour hundreds of thousands of Web sites daily, looking for retailers offering bargains below the “minimum advertised price,” or MAP, set by manufacturers on an array of consumer goods.

When NetEnforcers finds goods like cameras, handbags or ovens for sale at too-low prices, as it claims to do 5,000 to 10,000 times a day, it alerts its clients, including Sony Corp., Black & Decker Corp., Cisco Systems Inc., JVC Kenwood Holdings Inc. and Samsung Inc.

For discounters, the consequences of not respecting MAP are usually speedy and decisive. If the seller is an authorized dealer of the product in question (which means it is bound to honor a MAP agreement), it gets a notice from the manufacturer or NetEnforcers and typically brings its price into line within hours, the company says…

If the seller isn’t an authorized dealer — for instance, a discounter that acquired the goods via a distributor — NetEnforcers says other tactics are used to try to force a lowball price off the Internet. In these cases, they can allege that the discounter’s use of the product’s name or image constitutes trademark or copyright infringement, in an effort to force the seller to stop listing the discount.

While not all industries employ MAP rules, many do, especially industries with high ticket items like electronics. These rules threaten etailers ability to compete on price. Convenience and selection become more important differentiators for online retailers.

Etailers are fighting back through lobbying for new laws notes the WSJ:

Hoping to roll back a Supreme Court decision that allows manufacturers to set minimum prices on products, opponents launched a campaign that will include use of eBay Inc.’s popular Web site to garner consumer support.

At a closed-door meeting whose attendees included representatives of auctioneer eBay and discount retailer Costco Wholesale Corp., opponents decided to lobby for a bill now pending in Congress that would make minimum-pricing agreements a violation of antitrust law. EBay offered free use of its site for the campaign so it can reach many consumers, participants said.

But perhaps more importantly, even large etailers are skirting the edges of the rules:

Some retailers try to circumvent pricing restrictions by listing a product at the MAP price but telling shoppers to click an additional button — or to add the product to their shopping cart — to see a discount price.

Indeed, Circuit City’s online price for the TV moved up to the $1,699 MAP level soon after NetEnforcers noticed the lower price. But more recently, the item had a “see price in cart” notice next to it. Clicking on that opened another window displaying a discounted price of $1,439.99.

This supreme court ruling has turned out to have far reaching consequences for online retailers.

Why online display advertising may be down in 2009. December 4, 2008

Posted by jeremyliew in advertising, recession.

Henry Blodget has been saying for some time that online display advertising will be down in 2009.

For a year, we’ve listened to analysts passionately explain how online ad spending will power through any broader economic and advertising weakness. Eyeballs are moving online, this story went (goes), ad dollars will follow. Online advertising is accountable. Online advertising is the future. Blah, blah, blah.

It’s time we woke up and faced reality. Online display-ad spending will fall in 2009, probably sharply. It will probably fall again in 2010…

How bad will the online display ad market fare over the next couple of years? At this point, we would estimate at least a 10% drop next year and probably more. (20% is not inconceivable). Again, the overall market fell 25% from 2000-2002. There are many reasons why this falloff should not be be so extreme–namely, that half of online ad customers won’t go bankrupt this time. On the other hand, there are many reasons why this falloff could be worse: The general economy is going to get clobbered in this recession–something that didn’t happen last time.

His projection is at odds with most other projections, which mostly see slowing growth. As PaidContent noted last week:

Citing severe deterioration in the economy, eMarketer has dramatically reduced its 2009 online ad spending projections to only 8.9 percent growth, compared to the 14.5 percent gains it estimated in August. The revision was prompted by the latest Interactive Advertising Bureau and PricewaterhouseCoopers tally of online ad spending, which said last week that web-based advertising grew 11 percent in Q3 to $5.9 billion. And so, eMarketer now expects online ad spend to hit $25.7 billion next year, while it anticipates 2008 to finish up with $23.6 billion.

I’ve been receptive to Blodget’s view for some time, but had not heard a good explanation for why online advertising may shrink. His projections had been based on extrapolating trendlines rather than on identifying the underlying cause of a drop in online spending.

Today though, the chief digital officer for one of the big advertising agencies gave me a reason. He pointed out that with in ad recession, ad rates for traditional media have fallen dramatically. It’s now much cheaper to buy print, TV, radio and outdoor than it has been for some time. In an ad recession there is a flight to quality, and a flight to familiarity. Just as no one ever got fired for buying IBM computers in the 90s, so too, no media buyer is going to get fired for buying 30 second spots on ABC or full page ads in People. Especially when she is doing so at a big discount.

This dynamic, coupled with lower overall budgets, could create a temporary reversal in the secular shift from offline media to online media. Brand advertising is most likely to be at risk because it isn’t measureable. Direct response advertising (including search) will continue to see online taking share from offline.

As I’ve said before, it won’t be dark for all online media companies. Some online media companies will do better than others through this recession. But Blodget’s prediction just got a little bit more real for me.

2009 Cleantech Predictions December 3, 2008

Posted by lsvp in 2009, biofuel, China, Cleantech, electric vehicles, energy efficiency, energy storage, predictions, solar.

Lightspeed has invested across several cleantech areas, including solar (Stion), biofuels (LS9, Solazyme), clean coal (Coaltek), LED lighting (Exclara), and energy storage (Mobius Power). Here are some of our cleantech predictions for 2009 (see our prior year predictions here):

1. Cleantech funding will slow significantly, forcing startups to seek alternative growth strategies

The level of cleantech VC investment reached its highest levels ever in recent years. With the market downturn, however, many of the key players in the recent wave – private equity funds, hedge funds, project financiers, and debt providers – have slowed or halted their funding pace, and the IPO window is effectively closed. VC firms will continue to invest, but at a more modest pace.

As a result, we expect many startups to delay their timing for achieving commercial production. Startups will need to rethink their scale-up strategies and sacrifice growth in favor of reaching breakeven earlier. Hardest hit will be the companies that need to make significant capital expenditures to prepare for commercialization, but still have substantial technology and scale-up risk.

As companies find it more difficult to attract funding and drive down costs, expect some to seek more creative solutions. For example, biofuel startups will increasingly leverage underutilized production assets owned by distressed corn ethanol companies for commercial production capability. Meanwhile, expect large, established energy enterprises to play an increasingly vital role in helping to support startups as a development partner, funding source, customer, distribution partner or acquirer.

2. Companies will come under increased pressure to achieve competitive cost economics

With oil and energy prices falling significantly from last summer’s historical peaks, cleantech startups have stiffer requirements for the cost economics needed to compete with traditional energy sources. Companies with technologies that enable disruptive cost economics and can target higher-value market segments will be best positioned to stay competitive. For example, biofuel companies that can produce higher-value specialty chemicals can thrive even with oil at $40 per barrel. In solar, even with polysilicon prices falling due to the impending supply glut, high-efficiency thin-film solar panel providers will have the potential to exploit an intrinsic cost advantage. Conversely, companies that do not provide compelling cost economics will find it tough to contend.

The downturn has also made consumers and enterprises increasingly price sensitive and less willing to choose products at a price premium for the sake of “going green.” As such, sustainability-oriented green building products without an inherent cost advantage will be a tougher sell with more cost-conscious building owners.

3. Investor interest in energy storage, especially for automotive and grid-scale applications, to grow strongly

VCs will continue to invest in areas with large market opportunities, significant headroom for innovation, and more capital-efficient expansion models. We expect energy storage to be one of these areas. In the automotive sector, batteries with improved safety, performance, and cost parameters will be crucial to the broader adoption of electric vehicles (EV’s) and plug-in hybrid electric vehicles (PHEV’s). In the utility sector, the dramatic increase in distributed generation expected in the next decade from wind, solar, geothermal, and other sources will continue to adversely impact grid stability. We believe that economical grid-scale storage will be a critical part of the solution.

4. Government will play larger role in cleantech, as policymakers around the country increase their support

With passage of the solar investment tax credit and the Obama Administration’s stated support for a $100B+ energy plan, we expect the seeds of key U.S. energy policies for the next decade being planted in 2009. Although policy enactment may not happen in the coming year, expect topics like carbon cap-and-trade/taxation, national Renewable Portfolio Standards (RPS) and Renewable Fuel Standards (RFS), biofuel incentives, EV infrastructure, and grid-scale storage to be hotly debated. We expect that the federal government will move to formalize a venture capital-like arm to invest in promising cleantech startups, with particular emphasis on commercialization as opposed to research & development. State governments will continue to drive cleantech policy, with more states establishing or tightening RPS and RFS, reducing permitting requirements involved in consumer renewables adoption, and offering tax breaks for startups.

Importantly, policymakers at all levels will continue to consult the private sector to understand benefits and risks of emerging technologies that could benefit from regulatory support to avoid legislation that could potentially be detrimental to the cause (see Lightspeed’s presentation to California’s Lt. Governor and the Commission for Economic Development).

5. Cleantech comes of age in China

During the middle of last year, China passed the U.S. as the world’s largest producer of greenhouse gas emissions (GHG). 300 million people in the country have no access to potable drinking water; over a million people each year die from air pollution-related disorders, with new coal-fired plants going into operation on a weekly basis.

The Chinese government has put its might behind increased support for cleantech, enabling viable technologies to achieve distribution more rapidly. After the Olympics ended, the national leadership passed the Circular Economy Law to stimulate cleantech spending through energy efficiency, water conservation, and tighter regulation of GHG emissions. Further, the government has committed to a renewable energy budget of ~$300 billion over the next 12 years, a ~15% renewables target by 2020, and a ~$200 billion environmental protection budget through 2010.

VCs have already responded to this building momentum, as local investment in cleantech rose from $550 million last year to an expected $720 million this year, according to Cleantech China Research. Sectors that look poised to attract VC investor attention in 2009 include wind, clean coal, waste-to-fuel technologies, and energy-efficient building materials.

Myspace isn’t going away December 2, 2008

Posted by jeremyliew in Consumer internet, myspace.
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Businessweek covers the comments of writer Michael Wolff about Myspace, which he thinks is going to go away:

Michael Wolff: MySpace. They [meaning News Corp] know they have a huge problem. They’re quaking in their boots about MySpace. It always was a little rustling when I was there, there was this rustling—

Jon Fine: What do you identify as the problem?

MW: Facebook.

JF: OK. But Facebook is still smaller in America, and—

MW: Absolutely. But you know the rhythms of the Internet business, which I think are still, at this point, immutable. Something else comes along—a better technology, a better flavor of the month—and you, the former, are downgraded. Possibly to the point of being downgraded out of existence.

As a parallel, he points out that AOL* was once the dominant web destination, and now it is not. He misses one key point – AOL was not free. At it’s height it charged $23.95/mth for internet access bundled with community.

When people could get community for free and access for cheaper, they unbundled. Since MySpace is free, it is not going to get beaten on price.

Furthermore, now that AOL is also free, AOL and its subsidiaries reach 111m US unique users/mth. The AOL subscriber base peaked at 26.7m, with on average about 2 users per subscriber. So it actually has MORE users today than it used to.

Pundits like Wolff are often too early to call a top. People have been predicting that cable would “kill” broadcast TV for several decades now. While cable now reaches more people than broadcast TV, there are plenty of people still watching Heroes, Desperate Housewives and American Idol.

MySpace is going to be around for a while.
* Prior to joining Lightspeed I worked at AOL, initially as SVP of Corporate Development, then as GM of Netscape