Monday, November 24, 2008

Web based services...ready for hyper growth?

I was listening to the quarterly report from Liveperson (LPSN), a micro-cap stock that has not been a strong performer in the public market (I am not a shareholder). The article in Sunday's NYT that highlighted the positive trend in the Spirituality market piqued my interest.

The Company provides an on-line service that facilitates real-time assistance and expert advice. Essentially, they are in two businesses; a platform that assists their customers provide on-line support (chat and CRM) for consumers. More recently, they acquired Kasamba, an Israel based firm that offered a marketplace for consumers to directly connect to thousands of experts online.

One of the gurus of the online market business is Jeff Leventhal. Jeff, is the founder of Onforce, a stunningly successful marketplace for contract service professionals (primarily IT). Jeff is someone who is best known for solving the age old 'which came first, the chicken or the egg' question. In marketplaces, the question is referred to as 'do you build the sellers or attract the buyers first? As we tout the capital efficiency of building internet and software companies, it seems to take twice the time (and more than that in capital) as expected to build a viable, self-supporting community.

Services now represent more than 50% of the GNP, but only a fraction of on-line commerce. Think of the metaphor of building an 'Ebay for services'. Essentially, you sell/buy time and expertise, not physical goods. It's a tricky issue as trust is paramount to success.

My experience is that the buyer trust issue has held back success. If you have happy buyers, sellers will flock. It seems to me that the rise of trusted payments, video cams, and instant reputation measures, that buyers will get far more comfortable using these services. Probably with pure consumer activities first, then with a move to the mainstream. Fortunately, hundreds of vertical markets exist for such services, ranging from the 'pure' consumer (porn, health and spirituality), to more business oriented services (e.g. programming, IT support). Each of these markets represents potential revenues in billions of dollars.

Recessions force folk to do things more efficiently; whether buying physical goods, or, perhaps, expertise.

As my friend and fellow investor, Howard Morgan says, he named his blog WaytoEarly, because he works with companies, and markets, that are mostly early in their life cycles. In such instances, backing people who you trust can get the job done is paramount. This is one reason I have always been intrigued with my investment in Bitwine.

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