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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.
4 comments

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.

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.
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* Prior to joining Lightspeed I worked at AOL, initially as SVP of Corporate Development, then as GM of Netscape

Consumer confidence is at an all time low – factor this into your 2009 planning. October 29, 2008

Posted by jeremyliew in business models, Consumer internet, economics, start-up, startup, startups.
2 comments

The Consumer Confidence Index (CCI) measures how optimistic consumers are about the state of the economy. Specifically, it measures how consumers are feeling about:

1. Current business conditions.
2. Business conditions for the next six months.
3. Current employment conditions.
4. Employment conditions for the next six months.
5. Total family income for the next six months.

Notes Investopedia:

In the most simplistic terms, when [CCI] is trending up, consumers spend money, indicating a healthy economy. When confidence is trending down, consumers are saving more than they are spending, indicating the economy is in trouble. The idea is that the more confident people feel about the stability of their incomes, the more likely they are to make purchases.

The Conference Board, which measures the CCI, announced yesterday that:

The Conference Board Consumer Confidence Index™, which had improved moderately in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September…

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence. The decline in the Index (-23.4 points) is the third largest in the history of the series, and the lowest reading on record. In assessing current conditions, consumers rated the labor market and business conditions much less favorably, suggesting that the fourth quarter is off to a weaker start than the third quarter. Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening. Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season.”

As a point of comparison, the CCIs most recent peak was at 112 in July 2007. It is down by two thirds since then. The last CCI trough was at 61 in March of 2003, down from a peak of 144 in May 2000. This time around consumer are far more concerned than they were in even the depths of the last economic slowdown. Historical CCI stats are available here.

All consumer facing companies, whether ad based or commerce based, should bear these numbers in mind when planning for Q4 2008 and for 2009.

Implications of “Convenience Beats Quality” June 2, 2008

Posted by jeremyliew in Consumer internet, distribution, product management.
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3 comments

Fred Wilson says that convenience beats quality. In his post he is talking about video and photography. The amazing story of the limited featured Flip Camera, which captured 13% share of the video camera market in its first year on sale, bears testimony to this truism.

I think this maxim, that convenience beats quality, is true not just for video and photography, but also for most consumer internet services. It is one of the reasons that many of the apps that have been most successful on Facebook have been lightweight “just for fun” apps:

Some corollaries of this are:

1. The best product is neither necessary nor sufficient
2. Distribution can be more important than functionality
3. Lightweight interactions beat more involved interactions
4. Defaults matter as many people won’t change them
5. Use implicit information whenever you can to avoid asking users for data.

Do readers agree that convenience beats quality? If so, what are other corollaries?

2008 Consumer Internet Predictions December 3, 2007

Posted by jeremyliew in 2008, ad networks, advertising, casual games, Consumer internet, games, gaming, mmorpg, predictions, semantic web, social media, social networks, structure, user generated content, video.
16 comments

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 not be surprised at some of my predictions as they are themes that I’ve been talking about for some time. Later in the week my colleagues will take a crack at predictions for Mobile, Infrastructure and Cleantech.

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

Social media, online video and games are at early stages of development as advertising vehicles. Even more than the internet at large, a disproportionately small percentage of advertising dollars are being spent on these three media relative to time spent. Some people have even questioned if social media will be a media business at all, or online if video is a good way to monetize.

The slow start is because there are no standards yet in any of these media. If an advertiser wants to buy TV advertising across NBC, CBS, ABC and FOX, they can buy a common unit, the 30 second spot. If she wants to buy print advertising across Time, Fortune, Forbes, Newseek and Businessweek, she could similarly buy a common unit (e.g. a full page ad). But to buy across YouTube, Metacafe and Break, or across Myspace, Facebook and Bebo, or across GTA, Wild Tangent games and Pogo.com games, she needs to buy custom ad units in each property. This makes ad sales look more like business development – she is negotiating not just price, demographics and reach, but also what the actual units are. This is what makes new forms of advertising so hard. All three industries need ad unit standards to be able to scale. Otherwise they will be trapped by demands for customization.

This year, standards will start to emerge in each media. Some candidates for standards include (i) for social media; behavioral targeting, content targeting, demographic targeting or social ads, (ii) for online video; contextual targeting, overlays or pre-roll and (iii) for in game advertising; rich media or product placements. I don’t know which of these candidates will become standards, but I am confident that we will start to see growing support from both advertisers and publishers for the more successful units.

Ad networks will also gain share in each media, helping make the process of both buying and selling advertising easier.

Viewed through this lens, Facebook’s recent Beacon launch and subsequent adjustments are simply early moves towards figuring out what will be the native social media standard.

2. Structured web emerges.

The last couple of years have seen an explosion of user- generated content, across blogs, social networks, social media sites and user reviews. Previously, when most web content was created by editors, there was good structure and metadata around it. As most of the user- generated content has been unstructured, there has been an overall decrease in the level of structure, and hence a decrease in the ease with which people and computers can access and use this data.

But Meaning = Data + Structure. Search on user-generated sites has not been a great experience so far. This year we should start to see some point solutions emerge to help add structure to unstructured data, substantially improving the user experience. This will include both explicit (user-generated structure) and implicit (inferring structure from domain knowledge or user behavior) methods.

3. Games 2.0

Tens of millions of users are now using casual immersive worlds and playing MMOGs. These sites are some of the stickiest on the web, resulting in some of the highest levels of time spent per month online, and indicating that this is becoming a primary form of online communication for some users. Many of these users skew young, and if you believe that demographics is destiny, then you will expect this behavior to spread. The social aspects of these games is key to their popularity

Even more people are playing casual games online. These people often don’t have the ability to commit the time that MMOGs demand. They want to play with their friends, but instead of spending hours online together, they want to do it on their own schedule and in bite sized chunks.

These trends are likely to come together in asynchronous multiplayer games.

Other key drivers of growth for these products will include innovation in business models (free to play, ad- based and digital goods- based models) and channels (in- browser gaming, mobile, widgets).

Note – this post is cross posted to Venturebeat.

Lightweight self expression for the general public November 21, 2007

Posted by jeremyliew in blogging, communication, Consumer internet, product management, self espression.
2 comments

MIT Technology Review has two good articles about microblogging in the November/December issue. (Both are behind a free registration wall.) The puff piece on Evan Williams and Twitter notes some of his thoughts on micbroblogging:

The criticism doesn’t seem to bother Williams, in part because he’s heard it before. “Actually, listening to people talk about Twitter over the last few months, you hear that almost all the arguments against it are the exact same arguments that people had against Blogger,” he says. “‘Why would anyone want to do this?’ ‘It’s pointless.’ ‘It’s trivial.’ ‘It’s self-aggrandizing bullshit.’ ‘It’s not technically interesting.’ ‘There’s nothing to it.’ ‘How is this different from X, Y, and Z that’s existed for the past 10 years?'” Indeed, there were blogging tools available when Blogger was released, and others have emerged since–including TypePad from Six Apart, which offers more features. But none has the simple appeal of Blogger, and none is as easy to use. These were the reasons Blogger was such an important force in the blogging revolution.

There is an interesting idea at the heart of all this, and that is the idea of innovation through removing features. By focusing on a subset of core functionality, both Blogger and Twitter (and the other microblogging startups, as well as Facebook’s status) have made the user interaction much lighter weight. In my experience at AOL, Netscape and IAC, lightweight interactions generally work better with the general public.

Last year Gartner predicted that blogging would peak in 2007:

The analysts said that during the middle of next year the number of blogs will level out at about 100 million. The firm has said that 200 million people have already stopped writing their blogs… Gartner analyst Daryl Plummer said the reason for the levelling off in blogging was due to the fact that most people who would ever start a web blog had already done so. He said those who loved blogging were committed to keeping it up, while others had become bored and moved on.
“A lot of people have been in and out of this thing,” Mr Plummer said. “Everyone thinks they have something to say, until they’re put on stage and asked to say it.”

Microblogging removes some of the pressure to write substantive posts, making it a lighter interaction that is easier to keep up.

The public’s preference for lightweight self expression is part of what has made widget providers (such as Rock You, a Lightspeed company), profile layout sites (such as Free Code Source) and quiz sites (such as Quizilla) so successful.

Three ways that a conference lobby is like Facebook October 21, 2007

Posted by jeremyliew in communication, Consumer internet, performance, social networks, web 2.0.
6 comments

I spent three days last week at the Web 2.0 Summit, mostly in the lobby of the Palace hotel. The lobby served as the crossroads for the conference; all attendees passed through there and many never seemed to leave it! It was a great venue to catch up with friends and industry contacts among the attendees and lobbyconners.

It struck me that the conference lobby was like a social network in three ways:

Public Communication as Performance

At Web 2.0, if you wanted to have a private conversation, you would leave the lobby and find some place more private. In a social network, if you wanted to have a private conversation you would send a private message. But if you were OK with others seeing your conversation, you would stay in the lobby, or post a public message on the Wall/Comments. The Performance aspect of communication is seen both online and offline.

Serendipitous communication

In ordinary life, you communicate with far fewer people than you’d like to. You forget, you get busy, and you don’t reach out to people that you’d like to talk to more often. But in the lobby of a conference, you’re always accidentally running into people that you’d love to talk to but don’t usually see. This is one of the biggest benefits of conferences.

Similarly, social networks bring up opportunities to communicate with people that you may not have connected with in a while. Perhaps you see one of their comments posted on a friend’s MySpace page, or you get an update on them from the Facebook feed, and are prompted to ping them. I’ve been communicating more regularly with ex colleagues and extended family because of Facebook.

Lightweight Interactions

Over the course of two days at a conference you’ll see the same people a number of times. After you’ve talked, there is only so much you can say the next time, so your interactions tend to get lighter weight. You want to acknowledge each other but not necessarily get involved in a long conversation. So you smile, shake hands, clap shoulders, bump fists, wink, wave, or kiss cheeks (gender specific!) instead. It is the same rationale that leads you to text a friend instead of call.

Social networks provide similar lightweight opportunities for interaction. Facebook’s poke is the simplest example. Although Kara Swisher thinks that many Facebook apps are childish, I think they are providing an avenue for lightweight interactions between friends. Whether you’re buying someone a drink, biting them to turn them into a zombie, hugging, slapping or tickling them, the subtext of “I’m thinking of you” is there.

Conclusion

People building social media companies and other companies that require user interaction should bear these examples in mind. It is hard to create new mental models of behavior for users. As always, if there is an offline parallel for the online behavior you want from your users, you’re more likely to succeed. These three elements of social network behavior have clear offline parallels.