SpectatorBytes

The digital media landscape continues to evolve at a significant pace, with new forces disrupting the market dynamics every 12 months. This is one of the reasons why digital media companies of all sizes continue to struggle to sustain revenue and profit growth long-term.

As I have mentioned in previous posts, digital businesses need to be in a constant state of re-invention. They must embrace disruption, consistently drive innovation, and maintain highly flexible organizational/operational infrastructures to avoid becoming victims of rapid market changes.
The recognition of this phenomenon has led me to consistently focus on identifying these new forces as they emerge. Recently, I have been thinking about the major forces shaping today’s marketplace. I have touched on some aspects of these trends in recent posts. However, I thought I’d share with you some of the trends I find most interesting.

1. Mobile computing: The growing popularity and penetration of smartphones and netbooks will have a transformative impact in the marketplace over the next couple of years. While monetization models may take some time to develop, consumer behavior will be greatly impacted. These devices expand our ability to execute computer-driven tasks by a factor of 2-3 times. We will be able to consume dramatically more content and information, watch more videos, play more games, and buy more things than ever before. Moreover, competition among manufacturers for phones and netbooks has intensified over the past 12 months. We now have 3-4 pretty robust operating systems for mobile devices, several application stores, and declining price points. Carriers are aggressively embracing these new devices as a way to push their data products and increased stickiness. I expect penetration of smartphones and netbooks to accelerate beyond current analyst expectations.  In fact, the FCC recently warned that wireless networks will soon be overwhelmed by the explosion of data usage.

2. Social discovery: We are entering an era in which consumers will increasingly discover content using a social construct, in addition to search and traditional topic-based content aggregators. Twitter has established the “follow” metaphor as a way to consume content. Several new startups are leveraging this construct to enable consumers to more efficiently discover content. In past posts, I have discussed True/Slant and Fanfeedr (using FB connect) as examples of this trend.

3. Real-time: Twitter has brought real-time experiences to the mainstream. They have set new expectations around the speed of content distribution. Prior to Twitter, content sites were expected to deliver content periodically. Now, a growing segment of consumers expect content to be delivered in real-time.  Beyond the myriad Twitter-centric startups, real-time search engines have begun to emerge. At the TC 50 conference, there were several new efforts that focused on delivering real-time news and content such as Thoora and Clixtr. I expect the number of real-time experiences to grow meaningfully as consumers’ patience diminishes and startups find innovative ways to leverage real-time experience to increase user engagement. This desire for getting the latest information “now” will become particularly important in mobile experiences.

4. Distributed innovation: The web services revolution has put innovation in the hands of many. While this has happened over the past few years, the main implication is that companies must develop new models to drive innovation. In the past, companies relied on R&D teams, acquisitions and corporate venture efforts to drive innovation. However, given the new dynamics, companies are pursuing new approaches. The emergence of partnerships between companies and venture capitalists such as FB Fund to create highly targeted funds are an example of this type of new efforts. Best Buy recently partnered with my old firm Fuse Capital to pursue digital investments. Twitter has used its open API to aggressively drive innovation around its corpus of data. This search for continued innovation is likely to lead to the emergence of companies, which will be increasingly virtual in nature.

5. Premium experiences: High-quality content has always captured a disproportionate amount of the value in any medium. The Web will not be the exception. Even though consumers are faced with an infinite number of choices on the Web, they will continue to gravitate en masse towards high-quality content. The more cluttered the Web is, the more consumers will gravitate towards high-quality/talent-driven experiences. In recent months, I have seen renewed efforts to reinvent existing services around premium models. Some of these new services focus on talent and premium content, filtering out noise, enabling richer conversations, and qualifying participants. The success of sites such as Angie’s list, Hulu, the Ladders, and WOW in recent years has emboldened a new generation of startups to focus on developing premium versions of existing services.  The challenges of the advertising model has certainly further pushed companies in this direction as well as early success of fee-based applications in the iPhone. This does not mean that these services will necessarily be fee-driven. They believe that they will ultimately be able to capture a larger portion of advertising dollars as well as position themselves to offer fee services.

6. Data-driven advertising: We have been talking about hypertargeting for quite some time. However, I have begun to see the impact of enhanced targeting techniques used by ad networks. Nowadays, the display ads in the websites I tend to frequent offer products for which I have recently expressed interest. While I have worked for many years with ad networks who claim the ability to target users with great precision, I have never experienced hyper-targeting first-hand as a user. While I am witnessing a simple “re-targeting” product, I believe we are entering an era in which the entire ecosystem (publishers, ad networks, advertisers, exchanges) recognizes the value of user data and focuses on deploying more precise, data-driven ad products in the marketplace. Publishers should be able to leverage their data and others to increase the performance of their inventory. We are in the early stages of the process and will likely see a new generation of winners emerge as ecosystem is increasingly driven by data.

Please let me know if you think there are some other major trends which deserve to be among the ones I have reflected upon in this post.