Apparently some people think I’m a cynical, negative individual. I have no idea how this impression could have been created since I’m usually always laughing and smiling (kind of like Buddha).
The truth is that I do believe there is opportunity on the internet – even in the space called Web 2.0.
The problem is simply that many of the real opportunities are being overlooked by hordes of wannabe entrepreneurs trying to get rich quick copying already-successful services like MySpace, YouTube and Digg.
Because we’ve started a new year and everyone should have recovered from their hangovers by now (if you haven’t, please consult with a medical professional immediately), I thought it’d be valuable to suggest, in no particular order, five areas where I see opportunity in 2008.
1: Niches done well
Niches often provide solid business opportunities, both on the internet and off. In the world of Web 2.0, advertisers are increasingly targeting niche social networks.
It makes sense - certain niches provide the ability to reach very specific demographic groups. For some brands, advertising on niche properties makes far more sense than throwing money at MySpace and Facebook.
There are a number of keys to success with niche internet services. First, you must understand the niche and serve it well.
Typically this means that if you’re personally not passionate about the niche, you shouldn’t be in it. It also means you have to do a lot more than launch a basic clone and market it as, for example, “MySpace for octogenarians”.
Second, niche internet companies must recognise that the growth potential in most niche markets is significantly lower than in mainstream markets. Therefore, it’s wise to be realistic, scale appropriately and be satisfied with less than $15bn in paper money.
2. Publishers that deliver for advertisers
I believe that the biggest threat to internet advertising is the publishers themselves. The reason? Most are focused on selling advertising - far fewer are focused on delivering results for advertisers once they’ve been sold.
Right now, there is a lot of competition for eyeballs and the freshness of new media has given publishers some leeway as advertisers experiment with new models. But with a recession being almost inevitable, I think there’s opportunity for publishers who go out of their way to, at the very least, attempt to give advertisers the most bang for their buck. Advertisers just might start to demand it.
3. Integrated media
I’ve discussed integrated media before and I think it provides one of the best internet-related business opportunities today.
For obvious reasons, Old Media entities have some competitive advantages in launching integrated media ventures. But I still believe that there is ample opportunity for creative entrepreneurs to build media properties that leverage multiple distribution mediums in a coherent, integrated fashion, creating in the process a whole that’s greater than the sum of its parts.
4. Non-advertising-based revenue streams
I’ve argued that in a consumer-led economic slowdown, internet services dependent on advertising revenue will hurt far more than services that have non-advertising revenue streams even though one might expect both to be impacted equally.
There’s already some speculation that the downfall of battered mortgage lender Countrywide, which has been one of the largest individual advertisers on the internet, could impact Microsoft, Yahoo and even Google.
If the aftermath of Bubble 1.0 is any indication, it pays to have non-advertising revenue streams when the economy goes sour. And with some economists predicting the worst economic speed bump since 1929, internet entrepreneurs would be wise to develop services that aren’t wholly subsidised by advertisers.
5. Personal expression
I’ve never purchased furniture in Habbo Hotel and I don’t have any desire to buy bling in Cyworld. But the business of selling virtual items that enable internet users to express themselves is booming.
Over $2bn is spent on virtual items every year and I don’t think this is a trend to bet against. Disney certainly didn’t with its purchase of Club Penguin, which could be worth up to $700m.
And it was announced yesterday that Paramount has inked a deal with Habbo Hotel to create merchandise for one of Paramount’s upcoming movies.
Despite the surface absurdity of the virtual goods market, I actually think rationale behind the activity in the space is often quite sane. The same psychology (and consumer culture) that leads individuals to spend $1,000 on a hand bag or $600 on a pair of jeans will lead people to spend real money on their virtual identities, which, to an increasing number of young people, are just as important as real-life identities.
In my opinion, personal expression plays are some of the more interesting around.
They offer the ability to generate revenues directly from consumers (as opposed to advertisers) and there are substantial niche opportunities in the space as well. And I must admit, there’s something just sinfully delightful about making money selling things that don’t really exist.