InternetSectors: Internet Investment
The Internet is a vehicle for communication, growth and innovation. It has been an engine for growth since it’s wide scale adoption and increased bandwidth in the late 1990s. The Internet has given birth to new investment opportunities such as Yahoo and Google, as well as facebook and mySpace. In the 21st century almost every consumer-oriented company has to have a strong Internet presence in order to compete and expand sales. The end-game for any Internet company or company with a large Internet presence is to monetize user activity. When analyzing the Internet market it is important to understand the market segments within the industry. Key segments include Online Advertising (Search, Display and Video), Retail and Gaming.
Online advertising is expected to reach $50.3 billion in revenue by 2011 according to a study by Yankee Group, with Google expected to claim the largest share of this market. According to the study 20% of overall media consumption is conducted over the Internet, whereas advertisers only invest 7.5% of their budgets online. The potential for growth is still very large as more sites migrate to Web 2.0 in order to attract more users. Another factor influencing growth of users is the increase in ownership of portable Internet devices such as iPhones and BlackBerrys.
The US online retail market is expected to grow to an average of $263 billion in 2012, according to the combined results of Jupiter, eMarketer and Forrester. The projection is over $100 billion more than the market was in 2007. Although we have seen a global slow down in brick and mortar retail, the online marketplace has shown to be quite resilient during this time period. The online retail market has also become a primary market place for purchases, thus offering serious competition to brick & mortar retailers. The key to this industry from an investment perspective will be ensuring that as expansion occurs margins are constant or improve. This is particularly important for companies that require large warehouses for their inventory.
The online game market is expected to grow to more than $13 billion
worldwide by 2011, according to DFC Intelligence, from a market that
was just $3.4 billion in 2005.
This represents a 25% CAGR during the 2005 to 2011
time period. As more users come online, more games will be introduced
for a variety of different types of users ranging from children under
the age of 14 to adults in their 50s. The online gaming market will
capitalize on the expansion of social networking and utilize those
networks to enhance its own product and customer base.
As companies look to monetize their web content, the future of the Internet will depend on the demands of the users and how much they are willing to pay and what they are willing to pay for. The investment opportunities will lie in understanding the user as much as it will in understanding the business model. This methodology will also apply to the emerging markets, which have the potential to be the largest online populations.
