It is less than 20 years since the Netscape internet browser was invented, while the Yahoo directory approach for finding information on the web via a portal lost its appeal within a decade.
Nowadays, the new trend is for ‘social’ user-built internet communities, grouped together by an interest to access the information they really want.
This is a natural reaction to more and more content being available online, and the internet being a medium which has become a larger part of our daily lives. In that process, users are providing more and more of their personal data in exchange for getting more targeted information.
Facebook, for example, has positioned itself as the primary interface between users and the new, social internet. However, Facebook’s current popularity does not mean it is a more compelling opportunity than any other online portal, merely that few online competitors allow users to organise and navigate their internet experiences so easily.
Facebook exploits its dominant role in the online social world to extract value from various content areas such as gaming, video streaming and advertisers.
This requires many users to share personal data, either deliberately (by clicking the ‘Like’ button on Facebook for example), or unconsciously (through the browser, shopping, and text-entry history). Whether we like it or not, we are trading an increasing amount of our personal data for more personalised content.
And it’s not just social media companies such as Facebook who are increasingly reliant on data gathering.
Property search companies such as Zillow provide real-time data on all housing transactions in a geographical area. Unwittingly, the user becomes part of a real-estate search community by giving away personal data about what he or she is looking for.
In return, they get targeted advertising, perhaps information through simulated online ‘chats’ and, of course, they are sharing their transaction data with third-party sites.
However, firms that are heavily reliant on data gathering via user activity may be running an ultimately unsustainable business model. Sharing behaviour and habits change over time, and we are likely to see a consumer backlash against such intensive data gathering.
Other companies that seem attractive at first glance but don’t offer real value include online coupon businesses, which send out discounted offers by email, requiring expensive sales teams and with a limit on how many coupons you can use in a week.
There is little leverage in the business model, and both these and online gaming companies suffer from very low barriers to entry and potential regulatory challenges.
The real online opportunity for investors lies in companies that encourage consumer interaction, rather than portals that act as data parasites.
Online consumer review companies, for instance, are far more attractive, as long as they are focused on specific, identifiable areas. Companies that allow customers to review any product or service have traffic that is tough to monetise – but Tripadvisor is a quite different and a more compelling opportunity. The site allows customers to provide feedback on consumer experiences such as hotels and restaurants, and can group users into categories such as family with children or frequent reviewers.