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Transcript of 1 Internet 2.0 – Time for the VC industry to look again at the opportunities George Hadjigeorgiou...
1
Internet 2.0 – Time for the VC industry to look again at the
opportunities
George HadjigeorgiouCorporate Development, Yahoo!
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Internet 2.0 – Trends and Implications
2 Trends:
The users
The industry
2 Implications:
Implications for the VC industry
Implications for entrepreneurs and public policy makers
3
5 long-term macro trends driving technology investment
Population is aging
“Time Compression”
Wireless – take it with you
Decreasing reliance on oil
Security
Biotechnology
Internet/ Connectivity
Energy/ Environmental
Technology
IT/Software
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Trend 1 (Users):
Internet 1.0 - User growth (“breadth”)
Internet 2.0 - User engagement (“depth”)
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Global Internet Users have been growing
Future usage growth will come primarily from Asian countriesFuture usage growth will come primarily from Asian countries
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Internet is becoming more essential across a range of demographics
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However, real action and engagement is due to begin just now
In Cable, once penetration leveled out around 60-70%, growth in usageaccelerated, increasing almost 3x, from 29 hours/month in 1990 to 81 in 04
In Cable, once penetration leveled out around 60-70%, growth in usageaccelerated, increasing almost 3x, from 29 hours/month in 1990 to 81 in 04
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Three key drivers of usage depth
In 1996, John Doerr said: “by the year 2006, people will remember the current Internet
experience as quaint, like black and white television with limited
sound”
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Internet 1.0 was all about “breadth” – Internet 2.0 is all about “depth”
Internet 1.0 - more users (“breadth”) massive change in how users get information and communicate
breadth of usage or driving total users
Internet 2.0 – more user engagement (“depth”) User experience is getting better due to:
experience and feedback
k better product integration of key sources of value
faster speeds, always on and accessibility,
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Trend 2 (Industry):
Internet 1.0 – Boom/bust cycle
Internet 2.0 – Healthy expansion/consolidation
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Internet 1.0 - traditional capitalist cycle
“Overinvestment may seem wasteful, but then it’s always easy to identify winners once the race is over…there’s no substitute for experimentation with business models as
well as with technology” – Hal Varian
“Overinvestment may seem wasteful, but then it’s always easy to identify winners once the race is over…there’s no substitute for experimentation with business models as
well as with technology” – Hal Varian
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The emphasis is shifting form ISPs to “Pure Internet” and Internationals
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Internet 2.0 – expansion and consolidation
Internet 1.0: Classic boom/bust cycle -> darwinism
traditional capitalist cycle
aggregate market value of the Internet survivors are above 1999 levels
mix of the top 10 Internet players has evolved
Internet 2.0: Healthy expansion/consolidation cycle
number of Internet companies is now expanding
significant consolidation on a global basis is likely over the next 5-10 years led by product integration and flush balance sheets
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Implication 1:
M&A can and will be an attractive exit strategy and the VC industry can help play an important
role in building the Internet ecosystem
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Internet 1.0 – Hyper investment and “fingers burnt”
Huge investments in start-ups – more business than technology
investments
Survival of the fittest – bust and “$1 acquisitions”
Leaders focused on custom build underlying technologies
2001-2004: “Internet-shy” investments
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Trends are changing
Some examples of recent acquisitions – Kelkoo, Musicmatch, Flickr, Oddpost, Farechase
Most of them backed by VCs – only one public company
Some examples of recent acquisitions – Urchin, Keyhole, Picasa, Dodgeball
Only some of them backed by VCs/angel investors
Some examples of recent acquisitions – Shopping.com, Gumtree, Loquo, Rent.com, Kurant, Marktplaats, Craig’s List, Baaze, mobile.de, Internet Auction Co.
Most of them backed by VCs – only one public company
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Implications for the VC Industry
Exponential growth in Internet industry
Internet industry leaders will typically acquire for two reasons:
Market share/brand
Talent and innovation – technology enabling companies
By building technology-enabling companies, the VC industry will help to move the whole industry forward and build the internet ecosystem
VCs will create a lot of the companies that will fuel innovation for the leaders of Internet 2.0
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Implication 2:
Entrepreneurs need to think beyond the country/regional boundaries whilst supported by
public policy makers to foster innovation
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Implications for entrepreneurs and public policy makers
Tax incentives for innovation
“World-class” talent in
universities and applied research
Infrastructure/ broadband
Focus on one or two “killer”
technologies
“Extroversion” – Think regional
and beyond
Killer apps and technologies
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In summary …
Internet 1.0 was all about user growth (“breadth”) – Internet 2.0 is all about user engagement (“depth”)1
Internet 2.0 will be characterised by consolidation in the industry
2
VC industry can help play an important role in building the Internet ecosystem – M&A will be an attractive exit strategy3
4 Entrepreneurs need to be extrovert/ think beyond the boundaries of the country
5 Public Policy Makers can help to foster further innovation