Web 2.0 marks the decline of Ebay and Amazon March 26, 2007
Posted by ravimhatre in Consumer internet, Ecommerce, Internet, Lead gen, Search, start-up, web 2.0.12 comments
Om Malik is on to an important trend in his recent post regarding the marginalization of Ebay, Amazon and other legacy ecommerce marketplaces with the advent of e-commerce 2.0. Given the emergence of new and better merchandising technologies, more intuitive and comprehensive product search services, and the proliferation of contextual and performance-based advertising channels, small and mid-sized merchants are able to establish rapidly growing web outlets more easily than ever before.
In the first generation of ecommerce, marketplaces with recognizable consumer brands (like Ebay and Amazon) could offer small and mid-sized merchants access to large pools of customers. However, there was a significant premium charged for this access – usually 10 or more percent of the transaction price. Bear in mind that the typical merchant will have total gross margins of no more than 20-30 percent.
Like many net-based ecosystems we’re now witnessing the emergence of an open environment to replace first generation “closed” marketplaces or communities. Instead of listing on Ebay or Amazon and relying on their brand to attract customers and their standardized merchandising and search to drive purchases, a merchant can now easily build a product website that will drive organic traffic from vertical and horizontal search engines picking up their unique product content and also utilize a variety of performance based advertising channels including comparision shopping lead-gen sites (the top 10 sites delivered over 100 Million shopping leads to merchants in January 2007) as well as search engine keyword marketing to acquire new customers. These channels are less expensive and drive significantly more customers and purchases at higher margins than legacy marketplaces.
From a VC perspective, we believe a key requirement to making this work is the emergence of next-generation product search services that tame the Internet’s infinite shelf-space and provide consumers with truly comprehensive product search results through an interface that is highly intuitive and digestable. Several start-ups are intensely working to solve this problem such as TheFind (LSVP portfolio company) Become, and ShopWiki. Let us know what you think of their services.
Google CPA will crunch lead gen arbitrageurs margins further March 21, 2007
Posted by jeremyliew in advertising, Consumer internet, Lead gen, Search, start-up, startups.19 comments
Today’s release of Google’s Cost-Per-Action (CPA) beta has generated a lot of attention. Most are focusing on the impact on affiliate networks such as Commission Junction or Link Share as the test is currently confined to Adsense ads that show up on the Google Publisher Network.
I’m waiting for the other shoe to drop. The next logical step is to have these CPA ads show up as Adwords next to Google’s search results.
This presents a direct and present threat to many lead gen businesses, especially those that rely on CPC to CPA arbitrage as their business. I posted on the future of lead gen in January, where I noted that, simplifying substantially, lead gen comprises three processes:
1. Acquiring traffic (e.g. from paid search, organic search, brand advertising, banner advertising, distribution deals etc).
2. Converting traffic to leads through a form-fill process
3. Finding the highest value for a lead among multiple buyers (ie having a network of advertisers and knowing who placed what value on each lead)
Google’s current beta will essentially eliminate the arbitrage opportunities in part one of this value chain. Companies driving the majority of their traffic from organic search and (long term) distribution deals will be less affected, as will those who add value to the process by qualifying users and directing them to the best matched vendors as leads. But those whose core competencies are in clever media buying will be pressured because a CPA model shifts the risk out of buying CPC and CPM media and converting to lead forms.
There are a large number of lead gen companies that have grown to over $100m in revenue. These have grown to their current size by being well managed, and building multiple sources of traffic and an efficient mechanism for matching leads to their highest value.
Smaller “mom and pop” lead gen shops that depending on buying traffic through banner advertising and CPC advertising to landing pages and selling these leads to a small network of buyers will find their margins under increasing pressure if their clients can disintermediate them through Google’s new products.
UPDATE: Some very insightful responses posted in comments that I will attempt to summarize as “you’re assuming more efficiency exists than actually does, thats why this will still create a lot of value”. Its a fair point. If you read this in RSS, its worth reading the comments.
New forms of advertising are hard February 19, 2007
Posted by jeremyliew in advertising, Consumer internet, Digital Media, Internet, Lead gen, Search, start-up, startups, web 2.0.25 comments
I’ve seen a few startups recently that are relying on launching a new form of advertising as their business model. These can include product placements, sponsorships of various flavors, new forms of local advertising, interactive out-of-home advertising, and lots of variations of mobile advertising. This is a hard business. If successful, it can be very, very successful (e.g. Overture/Google with sponsored links in search) but entrepreneurs often underestimate how long it will take for revenues to ramp.
To understand how new forms of advertising get adopted, you need to understand how advertising is bought today. In most instances, ad agencies control the ad budgets for the largest advertisers in the world. Within those ad agencies, one of the functions is media buying. A media buyer’s role is to optimize reach (and sometimes quality of audience) for their client across all possible advertising channels. The problem with new forms of advertising is that they are often not represented in the media buyers’ spreadsheets and models. And if it’s not in the model, it doesn’t get allocated any ad spend.
Startups sometimes get traction with a new form of advertising because there are always some forward thinking advertiers who are willing to experiment. This early traction is often a customized program negotiated with an advertiser that is friendly with the startup through personal relationships. However, crossing over from a “business development” focused model (where each new deal is custom crafted) to an “ad sales” focused model (where standardized products are sold off of a rate card) is the key to massive scalability of revenues. To do this you need to get into the media buying model; you need to sell a standardized product.
For internet companies, that usually means that you need to get the IAB (Internet Advertising Bureau) to issue a new “Standard” ad unit, in much the same way that the IAB issued its first set of “voluntary guidelines” that set up 8 standard banner ad units in 1996, a massive reduction from the over 150 ad sizes that were in use at the time. This standardization greatly eases logistical complexity for both advertiers and media companies.
The process of creating a new standard can be quite a lengthy one. It usually involves a coalition of both media companies and advertisers coming together and negotiating the key elements of the standard. The composition of the IAB board is usually dominated by larger online media companies and it can be hard for a startup to have much influence on this decision making process. It can often be easier to align youself with the interests of a larger media company and let them carry the water up the hill, rather than trying to do it independantly as a startup. If you’re Dogster, you’ll have less success pushing a new standard for “sponsored profiles” than MySpace/FIM or AIMpages/AOL. So making sure that your sponsored profiles packages contain the same elements as those of the big guys will make your life easier as they take this new ad unit through the standardization process
The alternative approach is to make sure that your new form of advertising so closely parallels an existing standard ad unit that it can be considered within the existing bucket. 30 second online video ads (same format as TV),online leads (similar to phone leads) and new variations of CPC advertising (similar to search) have all been “close enough” to an existing ad unit that they have been able to tap existing ad budgets and grow quickly.
In either case, when building business plans on the assumption of the adoption of new ad units, make sure you give yourself enough time in your plans for the market to be created before it can grow to scale.
Useable Health Vertical Search February 16, 2007
Posted by ravimhatre in Consumer internet, Entrepreneur, Internet, Search, start-up, web 2.0.2 comments
There was a TechCrunch post today regarding a new search service from Healthline called Symptom Search which attempts to provide an information service suggesting common illnesses related to symptoms that a user is experiencing.
Symptom Search is a great idea. The challenge is to acheive comprehensiveness such that typical symptoms are accurately and completely mapped (in relevant order) to all possible diseases and vice versa.
Just for fun, I tried a couple of not uncommon symptom searches related to actual problems people I know have experienced recently. For example, one person I know experienced chronic tendonitis in reaction to being treated with Cipro. Unfortunately there were no results in Symptom Search that relate these two subjects.
I also had a recent experience with someone who experienced sudden hearing loss as the result of an ear infection however the system was not able to correlate the two and didn’t serve any relevant information.
Health information search is a technically challenging problem and one I believe requires a search metaphor and deep technology to address in a way that is meaningfull to the consumer. See my previous Lightpseed blog post about Vertical Search as a way to better address these types of research oriented searches.
Also, try the following two searches on the Kosmix Health Search portal (full disclosure, Lightpseed is an investor).
http://www.kosm…ro_tendonitis-s
http://www.kosm…ar_infection-s?
I typed in simple search requests such as “Sudden Hearing Loss” and “Cipro Tendonitis” and got back a wealth of topics and articles that linked these symptoms to their underlying causes and also to potential treatments and doctors.
Health Vertical Search is a challenging problem but one, if well solved, that could yield substantial consumer benefits as well as create a company of significant value.
The new “must see tv”… January 12, 2007
Posted by pchiang in Consumer internet, Digital Media, Search, startups, Venture Capital, video.2 comments
On Wednesday, Yahoo! and Akimbo announced a new partnership to bring the most popular selections of Yahoo! Video to the Akimbo video-on-demand service. This announcement comes on the heels of the launch of Apple TV, a set top box that wirelessly transfers digital media from user’s computers to their TVs. Both announcements highlight, the increasing convergence of video platforms. As Jeremy points out in his “2007 Consumer Internet Predictions”, time spent consuming videos both online and on the TV are increasing. Not only are people watching more videos than before but they are also watching videos in many more ways. Television/video viewer behavior is in the middle of an evolution.
A number of factors are driving this change:
1) There is the increasing adoption of TV/video technologies such as digital video recorders, video on demand and video downloads/streaming, not to mention Apple TV and iTunes/iPods. According to Forrestor, “DVRs have entered the hypergrowth phase, reaching more than 13 million households, including 17% of digital cable subscribers and 19% of satellite subscribers. DVRs will surpass 50% of homes within four years.” DVRs and the other technologies are enabling the “time shifting” of programs, the skipping of commercials and the ability to consume videos in smaller chunks and in different locations.
2) Decreasing costs of bandwidth and storage are removing the economic and practical barriers of having and distributing videos for both content owners and consumers. Broadband is dramatically improving the user experience of watching streamed videos. Peer-to-peer networks only increase the ease of distribution and access.
3) As everyone knows, alternative video platforms such as YouTube and other streaming videos sites (NBC Rewind, CBS Innertube, ABC.com, Fox On Demand…) are proliferating. The major studios saw what happened to the music industry and are trying to find ways in which they may embrace these changes without losing control over their assets. They are making more and more content available on their online destination sites and iTunes. For the consumer, this equates to more types of content and in more places.
These fundamental changes in the way people can watch videos are shifting mindsets to an “on demand” mentality. People are becoming the programmers of their own personal television network, dictating what they want to watch and when they want to watch it.
In recognizing this shift, two areas of opportunity come to mind.
1) Search/navigation/discovery of content. With so much content coming from so many different sources, the networks and cable channels are no longer the ones telling you what you “must see TV” is. Interesting content can now come from anywhere. However, more video options mean more videos to sort through to find something of interest. Some companies such as Blinkx and CastTV address the problem through improved video search relevancy. While others, such as CozmoTV and StumbleVideo, focus on video discovery through the votes of the community of users. Convergence of platforms and media types only promises more complication.
2) New advertising models that will capitalize on these shifts. As many people have predicted, TV advertisers will to continue to see their 15 and 30 second commercials go increasingly unwatched. Brand advertisers, who spend the $60B a year on television advertising, will still need to find a way to reach their target consumers. Advertisers still don’t seem comfortable associated their brands with the unpredictability of user generated content. While I agree with Jeremy’s assessment that the shift will take time, this advertising budget will go to new ad models that reach consumers in a more targeted and relevant way. One such model is that of broadband television networks, such as Revision3, which produces serialized content targeted towards specific interest groups at a fraction of the cost of mainstream television programs. Brand sponsorships are embedded into the programming itself and can be targeted toward the specific demographic of the show. Revision3 makes their content distribution platform neutral, allowing users to choose how and where they watch each episode.
These are only a few of the many new models bubbling up. I believe there will many opportunities for entrepreneurs who understand the evolution in user behavior and recognize the power of the different players in the value chain.
Lead gen is dead. Long live lead gen January 8, 2007
Posted by jeremyliew in Consumer internet, Ecommerce, Lead gen, Search, startups.13 comments
There has been some vigorous comment discussion on the post of 2007 consumer internet predictions, mostly about the lead gen prediction. Firstly, its wonderful to get comments – thank you. When you first start blogging it feels like shouting out a window into the darkness; you’re not really sure if anyone is out there, listening. It’s good to know that I’m not just talking to myself!
On to lead gen. There were two broad schools of thought on the state of lead gen. One is epitomized by a Jason Calacanis’ comment which, while lacking in detail, none the less crisply conveys his opinion of the industry and those who work in it.
Lead generation is dead. Companies would really be foolish to start a new leadgen company – especially NOW. Geesh.
Others shared more detail, and see a troubling situation as the arbitrage opportunities between buying CPC advertising and selling leads dry up. The markets, both in paid search and in remnant banner advertising, have become more efficient, squeezing margins for lead gen companies.
Yet others are more optimistic. Langley Steinert (co-founder of TripAdvisor, now CEO of Cargurus.com, and one of the pioneers of lead generation) believes that advertisers would much prefer to pay for leads, and others agree, although sometimes with reservations about if this is in the long term interest of the lead buyers
How can we reconcile some of these positions?
Simplifying substantially, lead gen comprises three processes:
1. Acquiring traffic (e.g. from paid search, organic search, brand advertising, banner advertising, distribution deals etc).
2. Converting traffic to leads through a form-fill process
3. Finding the highest value for a lead among multiple buyers (ie having a network of advertisers and knowing who placed what value on each lead)
Historically, most lead gen companies have been vertically integrated, doing all three processes. Also, historically, lead gen has been focused on a small number of industries, including mortgage lending (including refi, and home equity), consumer credit (including credit cards, educational lending, auto loans), new auto sales and online education.
In these industries, I think it’s fair to say that margins are shrinking and that competition is growing fiercer. The market, while not perfect, is becoming a lot more efficient. Some companies have established a competitive advantage in process #1 by locking in traffic either from organic search, from long term distribution deals, or by having established branded destinations (e.g. Lending Tree). Others have established a competitive advantage in process #3 through the breadth of their buyer network (e.g. Autobytel). Entering these markets today is going to be a tough road to hoe.
As I said in my prior post, I think we’ll see similar principles applied in other categories that also have high customer value, can sustain a sales person’s 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. These categories still allow arbitrage opportunities between CPC advertising and lead gen as they are still inefficient. However, they will also become efficient over time, and long term winners will need to establish competitive advantage in processes #1 and #2 as outlined above.
Interestingly enough, some companies, notably Leadpoint and Root Exchange, are trying to commoditize process #3 by establishing a “marketplace” for buyers and sellers of leads to efficiently find each other (taking a cut of the transaction in the process). If they are successful in doing this in the newer lead gen markets, they will serve to accelerate the margin compression and force successful lead gen companies to focus on the three elements of traffic acquisition that can sustain arbitrage: organic search traffic, branded destination traffic and long term distribution relationships.
It will be interesting to see how this industry plays out. Comments and thoughts, especially from industry practitioners, most welcome.
UPDATE: Some very interesting comments posted – worth reading if you are only getting a feed
Is Google unassailable? If so, Why are VCs chasing search? January 5, 2007
Posted by ravimhatre in Consumer internet, Search, startups, Venture Capital.3 comments
Several recent articles (NYT, Richard MacManus, etc) on next generation search and the questionable wisdom of backing businesses with a mission to displace some or all of Google’s current market domain caused us to do some of our own reflection.
Not only is Google tremendously good at what they do, in less than 10 years they’ve established a consumer brand with iconography to rival the likes of Nike’s famed athletic swoosh or Coca Cola’s signature “wave” heralding the onset of good times. Google’s navigational search delivers tremendous value when consumers know what they are looking for. Its unlikely we’ll witness the demise of this offering anytime soon.
However, there are many instances where a minimalist approach to search results simply can’t deliver what the user wants because the user doesnt know what he or she wants.
For example, I had a friend who recently contracted SSHL, a termporary hearing loss condition. I needed information. My search on Google yielded a hodgepodge of linear page results, most of which had nothing to do with the medical condition. My search on Kosmix (Lightspeed portfolio company), a category-based search engine, provided well organized, relevant results and suggested specific symptoms, treatments, medications, best hospitals, and other relevant directional tips to guide me through my discovery process. Similarly, when I was looking for post-holiday sales on Espresso Machines, I found Google’s answer to be virtually unintelligable versus the clean array of choices yielded by TheFind.
While Google has a dominant brand and will continue to be a “start-point” for many navigational searches, there are a variety situations where the answer to a user’s query doesn’t reside on the top page of links from a Google search results deck.
There in lies the opportunity. While there are challenges for start-ups in developing the right distribution channels and content syndication partnerships to scale up traffic and consumer mindshare, if the quality of vertical search experience can consistently create “aha” moments for the consumer it will yeild market opportunity.
As previous articles have noted, its not a matter of out-Googling, Google. More likely, it will be about identifying segments of search where consumers need more than a traditional page of linear result links to easily answer their information request. Over time, it doesn’t make that sense one size will fit all. Google may evolve and adapt to this segmented notion, but they will be required to learn the same lessons and develop similar alternative approaches to those of many start-ups that have already begun the process of search disaggregation.