Internet 2006 and beyond
Article Date: Apr 13 2006
I have a confession to make. I lost a lot of money investing in the dotcom boom in the early noughties. OK, I was not alone but I should have known better.
I’d been in the privileged position of having visited Sandhill Road, Palo Alto, California (the venture capital centre of the technology market) in early 1999 and I had heard about the effect of the internet, well before most in the UK.
I met Mike Moritz, a partner of VC firm Sequoia, who had invested in Yahoo but turned down Pierre Omidyar and his idea of auctioning Pez dispensers on the internet. Benchmark Capital, Sequoia’s main rival, invested $3 million – most of it never used – and ended up with 30 per cent of eBay. That was a hell of a coup for Benchmark (today the value is $58 billion). Still, Mike managed to recover his reputation by backing Google in a big way, personally and through his fund.
I made my mistake because I got carried away by the investment analysts’ numbers for growth. In a low-inflation and sales growth world I should have been more aware but was caught up in the hype.
Three years ahead of its time?
In 1993 I remember looking at the Sage financing memorandum I had prepared ten years earlier. The sales numbers were pretty accurate… if you moved them all back about three years!
What would happen if you took all the research carried out on the prospects for the internet in 2000 but looked at it afresh today? I bet the same time-lag, as in my Sage example, would apply.
The numbers are staggering. Twenty-four million UK consumers shopped online in 2005 and research suggests 60 per cent of the population – 35 million people in the UK – are internet users.
In the US the numbers are even more staggering. Did you know, for example, that in January 2006 alone there were 40 million unique visitors to porn sites, of which 30 per cent were female? (I’ve added in the last comment to avoid any doubts about my gender bias!)
The real winners
Back in 2000 if you had discussed what business models were considered most likely to succeed, the majority of commentators would have mentioned ‘business-to-consumer’ (B2C) or ‘business-to-business’ (B2B).
I guess we would have talked about Amazon, Lastminute.com, supply chain management, e-learning and e-procurement. All worthy contenders, but not today’s real winners.
No, the most successful and highly valued model has been people-to-people (P2P) – or, in more common parlance, you and I connecting through the web via some destination website.
So Friends Reunited, the website originally founded to let people contact old school friends, was recently sold to ITV for £120 million. Mychoice, a US-based website where people can chat about bands and music generally, has 27 million registered users. Just pause for a moment to consider the scale of that.
Perhaps the most controversial but successful business model is online gaming. Who would have thought that in just six years PartyPoker would have gone from zero to being capitalised at over £5 billion and become a FTSE 100 company with 500,000 individual poker players all playing against one another on any one day. Betfair, where individuals make their own book against each other on virtually any topic or sport, is another clear winner. Equally, online dating is a P2P application that is a phenomenally successful internet business.
