Felicis Ventures Blog

The Global Colors of Social Networking

A picture is worth a thousand words...I wanted to try out the new Google Insights for Search comparing the search volume/intensity around the world for: Facebook, MySpace, Hi5 and Friendster. The regionalities which existed before still continue and hold true

Facebook is tops in Turkey, Canada, UK and South Africa

Myspace is huge in the US, Puerto Rico, and Australia

Friendster rules in Philippines, Malaysia and Indonesia

Hi5 dominates Portugal and most of Central & South America including Peru, Dominican Republic

Now the more interesting ones - with respect to the local champions, they're still in the lead in their respective countries:

Vkontakte in Ukraine, Russia and Belarus

Mixi in Japan

But the most eye opening for me was the comparison between Xing and LinkedIn:

LinkedIn is strong in US and India but also in Europe (Denmark, Belgium & Netherlands)

Xing has a clear lead in Germany, Austria, in addition to *China* and Singapore

Why Combination of Social Networking & Mobile Platforms Will Be Big

  (image courtesy of InsideFacebook) eMarketer predicts that people accessing social networks on their mobile phones world-wide will grow ten-fold in the next five years, from 82 million in 2007 to over 800 million people in 2012. This major trend will have multiple implications. Usage of current popular social networks via mobile phones should grow rapidly. According to Brandon Lucas, head of mobile business development for MySpace, MySpace recorded 7 million unique registrations for MySpace Mobile within six months of launch. What's interesting is that these numbers are comparable to growth figures of mobile-only social networking players such as mig33, airG and Mocospace which also claim several millions users shortly after launch. If you thought abundance of available ad inventory on current social networks was an issue, the potential mobile ad inventory in the same segment will be much larger. The appeal of mobile social networking for carriers should be huge. Already large carriers like Vodafone are moving quickly to cut deals with leading social networks like Facebook and MySpace anticipating huge demand for mobile data access.

Results of a Forrester Research Study show that popular social networking activity of US Adult Mobile Internet Users (in Q2 of 2007) was uploading photos and videos at 44% and 38% respectively (60% of all phones in the US are estimated to be camera phones). Posting ratings of products/services at 42% was second only to uploading photos, followed by maintaining or updating a blog at 39%. It's surprising that we're not seeing many more leading websites launching mobile versions of their services with a design geared towards the mobile users. FriendFeed, despite being a relatively new service, understands the value of the mobile interface, as they launched a new iPhone interface recently.

As for monetization, at least 20% of US mobile users have seen SMS ads, while in Europe the number ranges from 31% in Germany to 73% in Spain, according to M:Metrics. Up to 10% of US mobile users and on average about 4% of European mobile users have purchased ringtones, while more than 9% of mobile users played downloaded games in Italy, Spain, UK and the US. Jupiter Research expects mobile entertainment revenues to grow from $20 billion in 2007 to over $64 billion in 2012 globally.

While there's a striking difference in usage patterns between iPhone users and other mobile phone users - for instance, 21% of iPhone users watched on demand video compared to 1.4% of total mobile phone users - the gap should narrow as RIM and HTC are expected to launch more compelling Blackberry and Windows Smartphone models respectively to compete with the iPhone.

In summary, the monetization and growth potential of mobile platforms shall remain extremely exciting on a global basis and this trend is unlikely to stay limited merely to the potential of iPhone.

Congratulations to Powerset on the Acquisition by Microsoft

It's official: Microsoft's acquiring Powerset. Powerset's semantic search technology had many interesting potential applications besides websearch such as enterprise search, vertical search, even ad targeting & mobile search (as listed by Microsoft's Don Dodge here) but it was seriously handicapped by the incredibly high indexing costs (up to 100x compared to other technologies). Combining Powerset's technology with Microsoft's abundant resources should unleash all its potential and enable Powerset to demonstrate what it can really do on a shorter timeline. Microsoft also announced that it plans to integrate Powerset's technology into its Live Search.

Plenty of other interesting perspectives on the deal can be found on Forbes, GigaOm, TechCrunch and Venturebeat. Congratulations to Barney and the rest of the Powerset team !

When To Raise Money

This was one of the key questions we had to address in a panel during last week's Red Herring 100 Conference in San Jose. While it's not an easy question to answer, the reply simply isn't just "when you need money". In fact, being contrarian is a good strategy when it comes to fund-raising. For example, Fund-raising in emergency mode only exacerbates the negotiation position.

While there are numerous variables that come into play in answering this question, such as if the markets are on the rise or not, certain factors play an important role regardless of market conditions. If possible, raising money from a position of strong momentum  significantly helps achieve a better outcome. For instance:

1. Coordinating the fund-raising effort to coincide with a major technical break-through, closing a key business deal or distribution partnership, making or identifying a major hire, where the positive momentum you're creating could clearly benefit from the newly raised funds.
2. To use Seth Godin's popular Passion-Pop chart, the cusp of either the passion or the pop curve, when traffic starts getting really viral, would be an ideal time as well.

Asian Internet Users Poised for Strong Growth

With 530 million users, Asia has the world's largest internet user population according to Internet World Stats. The penetration of internet users compared to the total population however is lowest in the world with 14%, except for Africa. Given internet penetration rates in North America and Europe of 73% and 48% respectively, that bodes well for strong growth in the number of internet users in Asia for years to come, making the region important to watch in the coming years.

While China has more than double the internet users of Japan with 210 million, it has less than one fourth of Japan's internet penetration at 16%. India has third largest internet user base in Asia, almost twice as much as in South Korea, but its internet penetration is 1/13th the rate of South Korea. More details of the specific Asian countries and their internet user statistics can be found here.

Facebook + Craigslist = Worked Like a Charm

My wife and I have just sold our two year old designer sofa in less than 24 hours. First step was taking a picture and posting it on Craigslist. What really closed the deal, however, was inserting that Craigslist link to our listing, into our Facebook status message (we did it with Gtalk status as well). It was my wife's brilliant idea and it worked like a charm. It's too early to say if this implies a new market or business model, but the experience was so positive - it makes me wonder. Most of us would rather buy from or sell goods to people we know and trust. More importantly, when that transaction is time sensitive, that connection might be even more crucial. Food for thought...

The iPhone Effect

eMarketer's recently published market research on Mobile Social Networks has surprising insights on the convergence of mobile market with social networks, highlighting key trends. The chart comparing the behavior of iPhone, Smartphone and regular phone users isn't an exception. While the differences are somewhat expected, the contract is pretty stark: an iPhone user is more than 10 times more likely to do a search, watch an on-demand video or access a social networking site compared to a regular phone user. While the differences between iPhone and Smartphone users are not as large, they're still significant. The chart below tells the story pretty clearly. It's one of the first interesting comparison stats I saw on the topic. (check out the report mentioned above for more details)

Google Leads in European Search, But Yandex Ahead of Yahoo

Google dominates the European Search Market with 80% share of all searches according to comScore's newly released European Search Rankings for March 2008. What's most interesting about the rankings is that the countries with highest searches per user happen to be places where Google dominates searches like Finland where it has about 92% market share.

It's surprising to see Yandex ahead of Yahoo with 2.2% market share of all searches in Europe. Especially considering Russia was at the bottom of the list in terms of searches per user, where each Russian user does a little more than half the searches compared to their Finnish counterparts, this number is even more intriguing. If Yandex could improve that searches per user number, it has a chance to solidify its position as being one of the top 3 search engines in Europe. It's interesting to hear many new upcoming search engines strive for that elusive "just 1% of the search market goal" and actually see the Russian search engine Yandex achieve that goal with over 2% market share in Europe.

Consumer Web is Still King (at least for me)

(image courtesy of Consumer Internet Barometer) Imagine Facebook working to win customers one at a time, climbing on the roofs of their users' houses, install solar panels and hand them a bill several days later...That's how Steve Jurvetson from DFJ compares  Consumer Internet companies' potential with their counterparts in other industries in a Cnet interview regarding how Consumer Internet is tops when it comes to most consistent / highest returns in venture capital. While I feel it's too early to count out the alternative energy space, it's clear that it's a completely different playing field. Nanosolar, one of the sector's stars, recently raised $50M, bringing its total investment since it was founded in 2002, to over $100M for a valuation around $2B. Compare that with Google, founded in September 1998, which raised one round of venture capital at $25M in 1999 (besides some seed funding by angels) and then went public in August 2004 at an initial valuation of $23B, less than 6 years after its inception. Capital efficiency is certainly one of the most important factors that make investing in consumer internet attractive.

Viral marketing plays a major role in the success of internet companies as well - in this case, Jurvetson gives the example of Skype which was able to grow to 309 million members world-wide mostly by word-of-mouth.

To put it in comparison, I wanted to see aggregate value created by the different sectors in technology. The best data source I could find was on Forbes Global 2000 from March 2006 - after manually regrouping companies (only based in the US and excluding alternative energy since I couldn't find any such companies on this list) into their respective buckets, the following table came out - Highlights:

• Internet companies have the highest average market capital created at $74B per company
• The top US companies in the technology sector (Internet, Software, Hardware, Storage, and Networking) generated over $1.8 trillion in market cap
• Software wins the top honors in terms of highest overall market cap created with over half a trillion dollars

 

This table would be even more interesting if I had the aggregate venture investment numbers to go along with it. However, I personally believe, consumer internet companies still have room to grow, and there is more value to be created in this sector. Combined with the philosophy "invest in what you know", I remain bullish on consumer internet...

Billions of Videos & YouTube's Unstoppable Rise

  According to latest metrics data release by comScore, basically 3 out of 4 people from the US internet audience watched an online video in February of 2008. While YouTube attracted 80 million viewers to MySpace's 50 million, each YouTube user watched over 4 times as many videos as a MySpace user. Average online video duration was under 3 minutes.

While the gap in traffic rank (according to Compete.com) between MySpace and YouTube narrowed to just 1 earlier this year, the search volume on Google for YouTube was more twice as much as MySpace. On another related update from Hitwise, Google's traffic referral for online videos went up by 44% during the last 12 months while MySpace's share of referred traffic fell 25% during the same period.