The Internet Economy

Last session of the day. My headache has declared war on my eyesight and my hands are cramping. Never get old, kids.

Our closing session is moderated by Imran Khan (JP Morgan Research). Panelists Yogen Dalal (Mayfield Fund), Jason Rapp (Interactive Corp), Dave Morgan (TACODA, Inc) and Elizabeth Ross (Tribal DDB West) are going to bring this day to a close with a discussion of the business side. It’s like our Shuffles section of the newsletter come to life.

Imran starts off by asking about how the online ad market will be affected by the recession.

Elizabeth: People are starting to hunker down. They’re going to start cutting costs in marketing.

Dave: I think online will do a little bit better than other media but we’re dependent on optimism and hope. And when you don’t have hope that marketing will get a return, you pull back.

Jason: I agree. One of the themes will be performance marketing versus general branding.

Yogen: Frivolous advertising gets cut in any down turn but online marketing is critical and it’s going to be the ones that provide value that will be the ones that get continued spending. When you look at the advertising loop, advertisers want to ensure they’re going to get something of value out of their spend.

Imran: Moving to online video, where are we in monetizing online video?

Elizabeth: I think pre and post roll are pretty lackluster. The interruption model of advertising doesn’t work on the Internet. That’s a smarter way to do it. We’re a little lazy right now as marketers and agencies. We just want to roll the ad and not have to earn the attention. [Oooh, the guy from the previous panel will fight you.]

Dave: We’re still trying to innovate. We still haven’t seen a lot of things that work yet. The things we’ve seen haven’t worked yet. It’s going to involve a business model shift.

Yogen: That’s really where the focus will be in the nest couple of years. Right now the current solutions don’t work. Advertising is going to have to become entertainment. We’re seeing it in American Idol and some of the beer commercials on YouTube.

Imran: How will brand creation change?

Elizabeth: The 360 marketing program works to build a brand. Can you build a brand with just text links? Probably not. A lot of the work on TV is for products that you’re already aware of. What’s the role, we should be asking ourselves. It’s true of any channel. If we think it’s going to work for every brand, we’re fooling ourselves.

Dave: It’s not really directly related. Audience down doesn’t mean rates go down. Rates go up because it means that there’s fragmentation and they’re even more the only point of mass contact.

Jason: Fragmentation favors the quality content creators online.

Imran: What’s the next big thing?

Yogen: I wish I knew for certain. He thinks its widgets. The content is brought to the user through the widget. It’s advertising through entertainment. Better than banner ads.

Elizabeth: The next ‘shiny’ thing. 8 months ago it was Second Life. But it really is a matter of stepping back and looking at the consumer and seeing what’s the driving force behind it. Don’t call it Facebook or Widgets or Second Life. You need to think more broadly than that.

Dave: There’s no pre-destined Next Big Thing. It requires someone focusing on it and investing in it and making it the next big thing. So many of the potentials are copycats and they’re not going to be the real next big thing. [No, Lisa, I’m not trying to rank for Next big thing, that’s just how many times he said it.] Liar.

Imran: How will the landscape change in the next couple of years?

Jason: No one knows but the shift in the lending market is going to change things. You need to get into where there’s synergy. Play where you’re getting the most bang for your buck. It’s more difficult to be public now than before.

Imran: Yahoo+Microsoft?

Jason: It’s a landscaping changing deal. Depends on where you’re standing. You’re going to have fewer paths to exist if you’re a startup. If you’re a mid-stage investor, you’re looking at possible partners. But it’s hard to say what will happen.

Dave: We have a big four today, so right now it’s a good time to try to be selling. We might end up with a big two and if we do, it’s doesn’t just halve your opportunity. Right now it’s all about cash. How much cash do you have in the bank?

Imran: How will VC investment change in the next year?

Yogen: Some of the greatest companies are started in the worst of times because the entrenched players are busy taking care of business so the little guys are looking for chinks in the armor. Big mergers slow down the market leaders and VCs love that. I expect to see a lot of companies getting funded in the next year that we won’t hear about for three or four years when they break the surface. They want to look for people in lasting companies, not companies with a 12 month exit strategy.

Imran: When you look at the international ad market, what are you hearing from your clients?

Elizabeth: Our offices around the world are doing very different kinds of work. It depends on what people are looking for and how they’re looking for it. Mobile penetration is higher in other countries for example.

Dave: Online advertising outside of the US is going to grow faster than inside. The biggest difference is that it’s national markets not regional markets. In the mid-late 90s, the national markets weren’t robust enough, that’s not the case anymore.

Yogen: More and more international users are coming to “US” Web sites. How do you display ads to them so that they get relevant ads? Are there going to be new international ad networks?

Jason: Our experience at IAC, for example at Match.com, is that people have a hard time coming into our market. But it’s not an easy import even if it’s a ‘great’ business model.

Dave: what if they go after niche markets instead? They don’t go for the whole thing, just their niche?

Elizabeth: I think the next big thing is the idea that I do something and things around me change. Harmony road in Japan and the Wii for example.

Imran: How do you get into mobile? He would argue we’re a little behind the world in that kind of thing. You can download comics in Japan, etc.

Elizabeth: It’s difficult to figure out how to buy mobile. You need to figure out why you’re in mobile. It’s not that you’re walking by Starbucks and you get SMS that gives you a coupon, that’s not a reason to be there.

Jason: Points out that mobile’s been the next big thing for the last 8 years.

Yogen: Why did Google succeed? Because the user had intent and they fulfilled it. That’s what needs to be done with mobile. How do you intercept and anticipate that intent.

[I’m skipping Q&A to get this over to Lisa for posting. See you tomorrow!] Go eat something and stay out of trouble, you hear?

Susan Esparza is former managing editor at Bruce Clay Inc., and has written extensively for clients and internal publications. Along with Bruce Clay, she is co-author of the first edition of Search Engine Optimization All-in-One Desk Reference For Dummies.

See Susan's author page for links to connect on social media.