June 22, 2012
According to Mary Meeker, partner at Kleiner Perkins, the magnitude of upcoming Internet changes will be stunning: “We are still in spring training”. She suggests those Internet trends:
- Nearly Ubiquitous High-Speed Wireless Access in Developed Countries
- Unprecedented Global Technology Innovation
- Ultra Competitive Markets for Mobile Operating Systems + Devices
- Broadly Accepted ‘Social Graphs’ / Information Transparency
- Fearless (& Connected) Entrepreneurs
- Difficult ‘What Do I Have to Lose’ Economic Environment for Many
- Available (& Experienced) Capital
- Fearless (& Connected) Consumers
- Inexpensive Devices / Access / Services (Apps)
- Ability to Reach Millions of New Users in Record (& Accelerating) Time
- ‘Social Emerging as Starting Distribution Point for Content,’ (Brian Norgard, Chill)
- Aggressive (and Informed) ‘On My Watch’ Executives at ‘Traditional’ Companies
- Unprecedented Combo of Focus on Technology AND Design
- Nearly ‘Plug & Play’ Environment For Entrepreneurs – Marketplaces / Web Services / Distributed Work / Innovative Productivity Tools / Low ‘Start Up’ Cost
- Beautiful / Relevant / Personalized / Curated Content for Consumers
It appears that the historical wealth creation in tech companies has been very concentrated. Thus, around just 2% of companies in tech IPOs accounted for around 100% of net wealth creation in the 1,720 Tech IPOs in USA, for the period 1980-2002. Source: The Technology IPO Yearbook: 9th Edition – 23 Years of Tech Investing, Morgan Stanley. Thus, picking winners in tech IPO is very uncertain.
Internet and mobile advertising
Internet ad spending represents around 22% of total ad spend. It is catching up with time spent online, 26% of total media time. That ratio is fairly comparable to old mediums like TV (43/42) and Radio (15/11). However, the discrepancy time spent on mobile online with mobile advertising is still huge (10 vs 1%). According to Meeker, there is a $20B+ opportunity just in USA both for Mobile and Internet advertising.
Internet advertising revenues for the first quarter of 2012 set a new record for the reporting period at $8.4 billion, according to the latest IAB Internet Advertising Report from the Interactive Advertising Bureau (IAB) and PwC U.S. It is the highest first-quarter revenue ever measured by the IAB and PwC and a $1.1 billion–or 15 percent increase–over the $7.3 billion figure reported in the first quarter 2011.
“More online consumers than ever are taking to the internet to inform and navigate their daily lives—by desktop, tablet or smartphone,” said Randall Rothenberg, President and CEO, IAB. “Marketers and agencies are clearly–and wisely–investing dollars to reach digitally connected consumers.”
“Digital media captures consumers’ imaginations, and marketers increasingly turn to interactive advertising to successfully speak to their customers,” said Sherrill Mane, Senior Vice President, Research, Analytics & Measurement, IAB.
“The year-over-year growth between Q1 2011 and Q1 2012 sets quite a milestone,” said David Silverman, Partner, PwC U.S. “Moreover, a 15 percent increase over the comparable period in 2011 is a solid affirmation the internet is delivering on its promise to attract consumers and the advertising dollars that follow.”
The following chart tracks first quarter ad revenue since 1996; dollar figures are rounded.
Who could benefit from this $20B+ opportunity in the USA?
I can name some three important players: Google (GOOG), Milllennial Media (MM) and Facebook (FB).
- Those firms are offering Beautiful / Relevant / Personalized / Curated content for consumers through tailored advertising, on both fixed Internet and mobile Internet.
- Those advertisers can play the role of efficient infomediation players.
- Millennial Media just had its first public quarter. The price of the stock is down 67% from day 1 of the techy IPO.
- Google has an attractive P/E ratio of 17X and has around 90% of its revenue from advertising. Google is largely dominating mobile search with a market share above 95%.
- Facebook stock is up 20% in the last 2 weeks. For the potential and challenges of Facebook you can see this Seeking Alpha article.