The remarks provide us with some insight on just how effective the US Venture Capital industry is in shaping market expectations. After all if you’re holding a portfolio of Web 2.0 investments you should be taking every opportunity to pump up the market in anticipation of executing the exit strategy.
Any experienced investor looking at the statistics would have observed that
- The newspapers have been losing market share decades – long before the internet came along, and
- Direct Marketing was growing at twice the rate of internet advertising off a significantly larger base.
So if you were interested in a backing a winner you’ d be thinking Direct Mail. Bigger market, bigger margins and less competition the only negative is the higher cost of entry – unless of course you already own a printing press.
Global deforestation clearly indicates print isn’t a dying industry. It’s just morphing into a new advertising model that doesn’t need “Content” to support the ads.
Printed advertising is such a core element of popular culture these days you don’t need content to entice people to read it. People are just as likely to read the sales catalogs stuffed in the post box as they are to read the ads in the newspapers and magazines.
The real insight here is simply this: While Silicon Valley continues to measure its growth against the newspaper industry it is measuring itself against the wrong benchmark. The advertising industry growth benchmark for the past 25 years has been direct marketing.
So, if you are looking to invest in the next big thing on the net, where would you be looking today?
You may remember that back in December we discovered that eCommerce had only added 3% to retail growth over the past 20 years. Thereby making eCommerce more of a niche outlet than a revolution in retailing.
If we look at the banking industry we know that for HSBC today the Internet now constitutes roughly 7% of all transactions. So the reality is Internet Banking hasn’t revolutionised HSBC’s business but it has evolved into a niche (albeit: cost-effective) service delivery channel.
We have seen a similar impact on the software industry. For example, Microsoft Office 500 Million Users vs. Google’s Freemium Spreadsheet/Docs/Apps 25 Million users translates into a 5% reach of the most popular web offering.
So it comes as no surprise to discover that Print Media is no different. If we crunch the numbers on the Newspaper industry we discover that the average reader views 5.4 Pages per visit. Assuming the printed edition is either a 25 page Broadsheet with 4 articles per page or a 100 Page Tabloid with one article per page we quickly discover the online edition of the newspaper delivers only 5.4% of the total news package to each reader.
This figure is consistent with the 5% market share for web advertising.
As I have said before newspaper don’t have a problem make money out of online advertising. The real problem is the online reader is not interested in reading the total news package online.
The real question facing any “wanna be” developer or investor who is looking at Martin’s advertising industry data is simply this: Is the 5% figure – and more importantly the upward trend line – a reflection of the potential growth rate or is the internet subject to some kind of arbitrary a market cap? Put another way is the internet revolution set to grow exponentially (i.e. will it have 10, 15 or even 30% of the advertising market share in 15 years time) or have we seen most of the growth in the first 15 years and is the internet destined to be just another sales and distribution channel capping out at around 5-10% of the market share in any industry sector it disrupts?
If you are a growth junkie you’ll be looking to invest in Web 2.0 and 3.0 technologies that will continue to disrupt old media channels like TV, Radio, Magazines & Newspapers or even Direct and Telephone Marketing.
On the other hand if you’re inclined towards the 5% market cap theory then you’ll be looking to invest in internet technologies that disrupt markets that remain relatively untouched by the internet. Or, more likely, you’ll be looking closely at the emerging technologies (e.g. Mobile Web, iPhone and the iPad) that will disrupt the existing Web 2.0 market leaders simply because, as I have said before, the only market threatened by Mobile Advertising is the Internet.
If you’re a Wall St investment banker then you will be looking out for the next big thing. You won’t be interested in a future of return of just 5%, 15% or 30%. You’ll be looking for a pay-day that delivers in excess of 1000%.
The internet has delivered this kind of growth in the past. The question is can the Internet deliver these kind of returns in the future? More importantly what type of Government policy will create the market dynamic necessary to generate these types of returns. For example, after the Clinton Administration tied America’s future to the information superhighway Cisco’s share price soared from $0.52 Cents in January 1992 to $68 in august 2000. That’s an ROI of about 95,000% for any investor who held on for the ride and sold at the height of the dot-com boom.
As more than one Wall St Banker observed during the Dot Com Boom the Internet was a global export marketing campaign for Cisco Routers and Switches.
The Cyber Bill currently before the US Senate is the type of public policy statement that has the potential to reshape market expectations and perhaps even provide the fuel for the next Global Internet Boom.
The “American Internet” is now 50 years old. It was an interesting idea back in the 60′s and an economic powerhouse in the 90′s but today, as the content of the Cyber Bill clearly illustrates, it has degenerated into a fragmented and unreliable “house of cards”. It has become, increasingly over time, too fragile and risk prone to serve the original purpose it was designed for. Clearly if the “American Internet” was more robust and secure there would be no need for the Cyber Bill.
The introduction of the Cyber Bill suggests one of two things: Either the Internet needs to be highly regulated by the US government so it is more safe and secure in the future or we need a new Internet.
If the rest of the world takes an exception to the US President acquiring the authority to seize control of and even shut down the internet then we may well see a new Dot Com boom. In response to the Bill the rest of the world may seek to invest in a next generation “Cyber Universe” that is independent, or at least operates in parallel to the aging and increasingly porous American construct. Something akin to the old American NTSC (Not the same color twice) 30 Frames per second TV standard vs. The European PAL 25 Frames per second TV standard.
The creation of a new and significantly more advanced European, Japanese or perhaps even Chinese or Indian Internet construct would revolutionise global communications. After all, imagine what you could create if you were tasked with the opportunity to build a brand new “universe of mobile things” from the ground up free from the limitations and weaknesses of the existing “American Internet”.
Plus the introduction of a parallel universe owned and operated by “the rest of the world” may spark the US to create their own “next generation” internet. If this should happen then the Cyber Bill has the potential to become a significant economic stimulus package.
So who knows, this then may well be where the next big growth opportunity on the internet may well be. Not in the lean pickings provided by advertising on “The Long Tail of the American Internet” but in becoming the next “Cisco”. The company tasked with manufacturing the backbone technology that securely connects all the wireless devices of this revolutionary and brand new global “Cyber Universe”.
[Updated 5-7-2010] The other public policy statement that will reshape investment in the web is of course the US President’s plan to nearly double the amount of commercially available wireless broadband spectrum.
The modern cell phone may well have been invented in the United States by Motorola in a race with AT&T but the reality is today the US is well behind Japan and South Korea in the adoption and commercialization of the Mobile Convergence technologies. This policy statement is an important step towards refocusing US efforts on profiting from the MobCon opportunities and securing the wider economic benefits that will reward the eventual winner of the race towards the MobCon.
“The economic impact of wireless is still unfolding, with a total surplus from expanding wireless estimated to be $40 to $50 billion every year. In present value, that is like adding $1 trillion to the nation’s wealth.” – National Economic Council
Further Reading
- Morgan Stanley’s Internet Trends [PDF] or [Slideshare]
Posted on June 20, 2010
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