Thursday, October 22, 2009

Traffic Jam

One of the most profound changes I have seen in the shift from client, or server based software companies, to the web, is the construct of the sales/marketing function. The shift of massive dollars and attention to marketing (GOOG); and away from direct sales and marketing support is astounding. Yet, recent experiences with a few portfolio companies has given me pause to think about where we are, and where's the market heading.

One of the laws of large markets is that, when they hit a critical size, they fragment. This is playing out, in spades, with Search. Not from the perspective of GOOG vs Yahoo vs Bing et al, but from the view of looking at, or for; people, places and things. Now that Facebook and LinkedIn have hit the magical tipping point, GOOG is no longer my 411 for people search. Likewise, the duo of TripAdvisor and Zagat handle my place inquiries with less clicks and more relevance. And for the mother of all categories, 'things', Ebay, Amazon, iTunes, and that great commoditizer, Craigslist, have my dial tone.

MSFL (My Smart Friend Larry) suggested that I run a chart comparing traffic for GOOG, Facebook and Amazon. Fascinating to see how FB has passed Amazon, and has GOOG in its sites. Though not on the chart, and amazing for a couple of year old company, Twitter is at a level near 50% of Amazon, and LinkedIn is 50% of Twitter..

Traffic, make that relevant traffic, is the 'coin of the realm' for internet companies. Heretofore, many firms rightfully obsessed with buying (Adwords) or 'stealing' (SEO) traffic from Google. But a couple of factors should shift the status quo. First, the aforementioned tipping point sites, and they're not the only one's, should continue to improve their price/performance faster than GOOG, which seems to be getting less relevant, in absolute terms, due to the 'optimizers' breaking it. At the same time, Adwords is getting so price efficient, where so many well capitalized companies are bidding for keywords, that the toll on the traffic ramp is just getting too steep to build a sustainable, capital efficient, business proposition. It's almost like where we were ten years ago in pre-paying for a sales force and SE's in the Enterprise space.

The good news in all this is the rapid maturation of social media. The potential for companies to offer a thrilling value proposition which their constituents (I am really shy about calling them 'users') enhance their personal value by inviting their friends/co-workers/social supply chain is astounding. When properly executed, the savings in sales/marketing expenses that companies can now devote to their products is tremendously exciting for entrepreneurs and as they say in Wharton, 'juicy' for investors.

The airwaves are full of Tweets, posts, and videos over what this means for the venture, angel and expansion asset classes. I am sure there's room for all, and the relative opportunities will inevitably ebb and flow between them. As they say, stopped clocks are right twice a day. If you choose one area, and stay with it, no doubt that you'll be least once per decade.

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