2010 Cleantech Predictions December 18, 2009
Posted by Andrew Chung in 2010, biofuel, Cleantech, electric vehicles, energy efficiency, energy storage, predictions, smart grid, solar.Tags: LinkedIn
4 comments
Lightspeed has invested across several cleantech areas, including solar (Stion), biofuels (LS9, Solazyme), clean coal (Coaltek), LED lighting (Exclara), and energy storage (Leyden Energy, f/k/a Mobius Power).
Peter Nieh and I (Andrew Chung) teamed up again this year to make a few predictions about cleantech in 2010 (see our prior year predictions for 2009 and 2008):
1. There will be increased availability of equity, debt, and project finance capital, along with an increased flight to quality.
Despite 2009 being a slow year for venture capital firms raising funds (Q3 featured the fewest number of VC firms raising money in 15 years), the cleantech category appears to have drawn continued commitments. Several domestic firms raised large cleantech-focused funds earlier this year. Internationally – from China to Singapore, India to South Africa – a number of local venture and private equity firms are now raising multi-hundred million dollar funds to target cleantech investment. As such, the global pool of equity capital targeted at cleantech will be greater in 2010, as investors continue to look at the sector as a source of investment opportunity. The emergence of the debt markets from the depths of the fallout from late 2008 and the growth in capital flows from an improved stock market should also increase the availability of debt, tax equity, and project finance capital.
Despite the rise in availability of capital in 2010, investors will likely remain cautious. We expect a larger share of dollars to go into emerging leaders and high-potential portfolio companies, as the number of new companies funded in first-time investments grows more moderately. Larger funds may preserve capital to make more substantial bets in later-stage, “winner’s circle” companies.
2. Massive project deployments and manufacturing capacity growth will be undertaken, as winners and losers become more apparent.
In 2010, we expect a number of prominent VC-backed cleantech companies to be tested, as they emerge from R&D and initial customer acquisition and move into full-scale production and/or deployment mode. Some companies will rise to market leadership, while others may fall, as the myths and reality of their technology, competitive edge, and ability to scale come to light.
The “shakeout” will likely impact the sectors that have seen the most investment in recent years, such as:
- Solar: Many up-and-coming solar manufacturers have made bold claims about their capabilities. As these companies start to ramp their manufacturing capacity, their validity of their claims on efficiencies, yields, cost economics, capital efficiency, and field reliability will become more readily apparent. Companies will find it much more difficult to “scale first, optimize later,” as pressure on cash reserves increase significantly.
- Smart grid: As some of the massive project deployments with nationwide utilities roll out, whether new technologies can truly scale to millions of endpoints cost effectively and reliably will become clearer. The utilities will also better judge the extent of the value created by the deployed networks and how far it extends beyond advanced metering into areas like demand response, distribution automation, and network management.
3. Momentum in plug-in hybrids and electric vehicles to continue, as a greater variety of vehicles starts to arrive to market. Electrical storage will be the key enabling technology.
Nearly every major carmaker claims it will launch a plug-in hybrid electric vehicle (PHEV) or all-electric vehicle (EV) some time between 2010 and 2013, as concept cars start to become production models. Notable target launches for 2010 include the Chevy Volt and Nissan EV-02. Numerous startups will also look to enter the market, despite the challenges in raising the funding needed to compete in the automobile industry.
Another trend to watch in 2010 will be an increased focus for fleet operators to consider adoption of HEVs and PHEVs, as the industry looks to rebound from the downturn and retire more of their aging fleet. Adoption will still be early, but sustainability initiatives and new emissions regulations should help.
The key enabler for the HEV and PHEV revolution will continue to be the battery technology. While established companies like Sanyo, LG, and Hitachi are all attempting to adapt their lithium-ion battery technology for the automotive market, limitations with traditional chemistries have made it difficult for a clear victor to become apparent; startups have an opportunity to disrupt the market and become alternatives for OEMs. For example, Leyden Energy (formerly Mobius Power, a Lightspeed portfolio company) is bringing to market Li-ion batteries that offer the high energy density that is critical for EVs, while providing a high degree of safety and long cycle life over a wide operating temperature range. We expect there to be some healthy competition and progress made here in 2010.
4. 2010 could see several public exits from some of the emerging leaders; consolidation, M&A, partnership, and JV activity expected to grow
With the IPO markets opening a crack in mid-2009 after nearly a year-long drought among VC-backed companies, investors appear cautiously optimistic about some public offerings in the cleantech area in 2010. We expect that IPO demand in this sector will be driven by factors like the success of the A123 offering (although the stock has come down 35% from its high and stabilized at where it opened in September 2009) and the scarcity of quality cleantech public companies.
Consolidation and vertical integration in areas like solar and biofuels will continue – many involving distressed companies that can no longer support the high cost of their assets and debt load. A number of solar M&A deals were announced in 2009, including First Solar acquiring Optisolar for $400 million and MEMC acquiring SunEdison for $200 million.
A number of biofuels companies have been active in the last couple of years developing strategic partnerships and joint ventures in order to speed up their market entry. LS9 and Solazyme (Lightspeed portfolio companies), for example, have teamed up with established giants like Chevron, Proctor & Gamble, and the U.S. Navy to further their development efforts.
We expect to see these types of transactions and relationships to continue in earnest in 2010, as large companies seek ways to tap into startup innovation, and startups seek ways to scale up in more capital-efficient fashion.
2010 Mobile Predictions December 14, 2009
Posted by jseid in 2010, mobile, predictions.7 comments
We continue to be excited about the mobile sector and the opportunities for entrepreneurs to build large companies. The industry has seen the smartphone universe expand dramatically and now no smartphone is complete without an app store. New business models like mobile advertising, which were touted in 2005 and 2006 but failed to live up to early expectations now seem to be blossoming. That said, we believe we’re still in the early innings with many more innovations to come.
Here are our predictions for the mobile sector for 2010:
1. Virtual goods means real revenue in mobile
We’ve all seen the rise of the virtual-goods economy in the online world. Like its impact on the online world, virtual goods is poised to have profound positive impact on mobile-app startups for several reasons. First, unlike the subscription fee or one-time purchase business model, virtual goods can help eliminate the friction to adoption. The cost to the consumer to try the app can be $0 yet the app developer still has a way to make money by selling virtual goods.
Second, the virtual-goods business model has proven to be a very scalable one. It has helped to create multiple public companies valued in the billion-dollar plus range including DeNA (in mobile) and TenCent (in the online world). Finally, it’s not mutually exclusive with the existing purchase, subscription and advertising business models. Certainly widespread adoption of virtual goods in mobile will take time and, depending on the platform, various issues will have to be worked through. But this business model’s entrance into the mobile arena bodes well for the entire ecosystem.
2. Still waiting for “off-deck” to (really) happen
Well, in some ways it has happened—almost. Certainly, the iPhone App Store is a great step forward for the industry. But, compared to the success of the iPhone App Store, the rest of the industry’s major players—Android, Nokia (NYSE: NOK), Windows and RIM (NSDQ: RIMM)—have a lot of catching up to do. Those app stores are not quite functioning at where they need to be to give iPhone’s App Store a run for its money.
The most cynical in the industry may actually say the iPhone App Store is not truly “off-deck,” it’s just a different deck. But however you want to slice it, we’re still a long way off from mobile-app developers being able to create true direct-to-consumer offerings like their cousins in the web world.
3. Nokia or RIM buys Palm (and the next round of big battles begin)
Palm built a slick OS but it is in a tough spot as a standalone company. It’s not RIM and Nokia, big handset guys with material smartphone market share, and that creates a tough spot for Palm (NSDQ: PALM).
Apple’s iPhone not only created a great consumer experience but it created a great platform for developers. This platform allows developers to create compelling mobile apps, to reach the consumer without going through a carrier, and to bill the consumer leveraging the iTunes merchant
relationship. Apple (NSDQ: AAPL) set off the virtuous cycles that feeds both the growth in the installed iPhones (and iPod Touches) and the growth in apps (and developers).
Legacy software at Nokia and RIM and the lack of deep OS software expertise at other handset vendors meant Palm had a chance to create its own virtuous cycle. Until Android pulled the rug out and ran off with the momentum.
In the world of mobile operating systems, Palm has created a real asset. For large OEMs like Nokia and RIM that have solid hardware and massive distribution but legacy software, Palm may be an asset they can’t live without.
4. The enterprise moves past using mobile data for just email
RIM did a great thing for industry in driving mobile data into the enterprise. This was no easy task since the enterprise is complicated. It not only involves catering to the needs of the end user but also getting IT comfortable that you are conforming to and not breaking their network and security architecture. Mobile email now has a healthy adoption rate in the enterprise and the good news is that people believe in the productivity benefits and are looking for the next set of applications to mobilize (the bad news about mobile email adoption is that response-time expectations have shrunk to hours and there’s no such thing anymore as an “out of office” auto response for why you can’t read email).
Other smartphone platforms beyond RIM, such as the iPhone, have also seen interesting levels of adoption, and we expect that to grow. With a rich and growing smartphone base in the enterprise and a positive experience around the benefits of mobile data from both end users and IT, we expect 2010 will create an opportunity for a new generation hot mobile apps and technologies—this time focused on the enterprise.
In 2010, mobile innovations will branch out into new categories, while also benefiting as the recipient of long-awaited applications. Both these trends will create new methods for monetization in the U.S. and beyond, and ultimately, promise another important and profitable year for the category.
2010 Consumer Internet Predictions December 11, 2009
Posted by jeremyliew in 2010, Consumer internet, predictions.17 comments
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:
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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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