AvenueA/Razorfish, a leading digital advertising agency in the US, is reporting that the share of client dollars it spent on portals went down in 2007, while niche, vertical sites increased their share. More info is at CNET. CNET says, “The share spent on portals dropped from 24 percent in 2006 to 19 percent, while search share rose to 31 percent from 28 percent, vertical sites rose to 39 percent from 37 percent, and spending on ad networks was flat at 11 percent. More dollars went to the top 5 ad networks.”

The share of dollars to the portals, the generalists who offer a litte bit of everything — some basic things like mail and news and sports and some high end things like behavioral and contextual targeting, went down. While the share of dollars to specific, targeted sites (vertical sites in the paragraph above) went up — these are the sites that offer a targeted audience doing one thing and engaging deeply in that area.

Sounds like what has been happening at department stores. These large, non-specialized stores saw their market share drop from 38% in 1995 to just 19% in 2002 (source: RetailTraffic). Department stores lost out to deep discounters like Wal-Mart or specialized stores such as Ann Taylor and Abercrombie & Fitch that relentlessly pursued a focus on a certain type of consumer, rather than just a tagline of “Everything to Everyone” which turns into “Nothing really for Anyone.” Seems to me like department stores and portals are pretty similar.

I wouldn’t be surprised at all, in fact I would expect, that we will continue to see revenue shift away from portals and move to players that provide more specialized, targeted solutions. 2007 might just be the tipping point for the maturity of the online advertising industry in the US away from the mass-market, generic solutions offered by the portals. And like the data shows, it looks like we are tipping to a world where these niche communities and/or technologies take up the baton and lead the race of the next 10 years of online advertising.

The ramifications I believe are similar to what happened in the television world. Television saw a similar evolution as the major networks (CBS, ABC, NBC) saw a splintering of their audience and market share to cable television. If you use that as a roadmap, portals to compete in this new world need to build/buy vertically oriented sites and keep them separate (to keep their high quality audience from being diluted by the portal audience), or to buy ad networks that recreate niche or technical targeting. And if you’re a vertically oriented site or ad network you are like a brand new cable network — you are looking good as long as you stay focused!

This is all especially interesting in light of Microsoft’s $40B+ bid for Yahoo!  Am I saying that Microsoft is wasting $40B?  No, definitely not.  Going back to the similarities in TV, the major broadcast networks have still increased their revenues every year (until recently).  Even while the consumer audience was splintering and moving to cable the broadcast channels were able to charge more and more per viewer because it was the only place for advertisers to get a mass audience.  I fully believe that Yahoo! and MSN will still be able to charge $500k-1M a day for the homepage ad placement and that will go up for a while.  But the core of the business is aggregating large audiences, so though broadcast networks were able to grow their topline the core of their business was actually rotting out as the audience shrunk.  The portals will also hide the rotting of their core business for some time, but it will catch up with them eventually.  And one thing that will hasten it is the distributed nature of the web.  In TV you don’t have an ad network that can get you a mass audience across thousands, or even hundreds, of channels in a one day period of time or in a single hour.  On the web you have this, and ad networks can target precisely as well.  Ad networks could be the portal replacement for how to reach a mass audience and will provide competition to the mass portal homepage placement (e.g., Advertising.com in the UK sells a Netblock which is a buy across all the ad placements on their network on a Saturday morning).  Net net: the time bomb on portals will tick a heck of a lot faster than it did for broadcast TV.

In summary, it looks like web viewers are spending with their traffic. Department portals are being sidelined for specialty sites — how are YOU shopping these days?

Anurag Gupta recently made an interesting post about some issues he sees with Web 2.0 companies in India. In general, I think Anurag has good things to say, but I have to say that I have a pretty different point of view from him about the ability of startups in India to compete against the biggies.

Anurag says “The biggies can score very easily over small Indian start-ups. I am not sure if an Indian start-up can match tech prowess / capabilities of a Google or a Facebook who may have millions of dollars just to invest in technology & product engineering. I personally feel that Indian companies do not have the capabilities, might or mind-set to compete in offerings that are purely tech led.”

Come on, people, let’s have some confidence!! If I remember correctly, 10 years ago Google was two guys in a garage building some search ranking algorithms. 15 years ago Yahoo! was 2 guys in a trailer, putting sites into a directory. A lot of has changed in the last 10-15 years, but I still think that 2 guys in a trailer/garage is 2 guys in a trailer/garage. In fact, all the things needed to help an entrepreneur in India have only gotten better – Internet connectivity is better (still not great, but better), number of people interested in working at startups has grown (still not good enough, but it’s better), more angel investors, more VCs, more mentors who have been had successful startups or executive roles.

Skype is a global phenomenon, and a huge part of the team was based in Estonia, not the United States, not even the UK. Estonia. Estonia is a country of 1.5 milllion people. Are you telling me that India — a country of 1.1B people, lots of great technical talent , and a pride for its ancient roots in innovating around mathematical conepts — cannot produce some great products?

Of course, it’s tough to build a better search engine than Google, or build a better portal than Yahoo!. But innovation is about whole new markets. Whether it’s in information organization, collaboration, enterprise software, mobile, search, entertainment there is no reason that India cannot produce a global biggie. I certainly hope we do.

Most importantly: it starts with raw ambition that it can be done. We need entrepreneurs who dream of building huge companies and changing the markets they are in, or creating whole new markets. You probably aren’t going to run a marathon (26.4 miles) if you just aim to run 2 miles.  I agree that with Anurag that it’s about capabilities and mindset.  I don’t agree it’s about might.  Indian entrepreneurs have the capability, and some have the mindset, but we need more that have the mindset.  What is great about mindset is that that doesn’t require anything but YOU to change YOUR own mind-set.  You don’t need the government to do anything, you don’t need your family to do anything, you don’t need the world to do anything — you just need to change your mindset.

I like to think that the company I founded is innovating to compete against the world biggies.  We have already been fortunate (and lucky) enough to be named a top 40 startup in the world by TechCrunch.  We’re not a global biggie yet, but we’re doing our best to become one.  I refuse to believe that we can’t do it; I also have no evidence that tells me we can’t do it.  I would happily put our team (myself excluded, I’m the dunce of the group) against any startup in the world, or any startup team that created a big company.  Don’t sell yourself short and think you can’t do it either. 

P.S. All respect to Anurag, I just have a different point of view. 

I am really excited to announce today that Komli, the company I started in 2006, has raised $7M in venture capital.   Nexus India Capital led the round, along with Draper Fisher Jurvetson and Helion Ventures.

 I am really excited about this! I am really excited about this! 

Seriously, I am really excited about this! 

Can you tell? 

I am really excited about this because:

  1. It’s great that we have such amazing partners who are further committed to helping us. Suvir Sujan, from Nexus, is joining our board. He was formerly the founder of Bazee, which was bought by eBay when they wanted to enter India. He has built a very successful company in India before, and hopefully can help us do it again.
  2. This gives our company significant capital to make our products better for customers.  First, we are investing heavily in PubMatic, which we view as really valuable for publishers.  Publishers will have the ability to improve their monetization and ad networks will be able to provide better results for advertisers. Secondly, we hope to launch innovative new products in the Indian market for advertisers and publishers.

This is a significant investment from some top venture partners and it’s our responsibility for our customers’ sake to put it to good use.  We will be growing our team aggressively, especially in engineering, to build technology driven products.  We have built a leading machine learning team and are adding to it every day as we look to build new algorithms that drive better results.   For example, in PubMatic, we know that geo-targeting for publishers is very important and that sending the right impression to the right ad network depending on country can make a publisher significantly more money.  But most ad networks don’t provide reporting at the country level.  Our machine learning team is devising interesting new ways to learn on the fly how an ad network is pricing in a given geography, and then send the impression to that network.  And you were asking “When am I going to ever use this stuff?” in math class.  Well, we’re using it!

We really appreciate all the support from our thousands of publishers and advertiser clients who have been working us and give us the privilege of doing business with them every day.  It’s great and we look forward to an awesome 2008!

Okay, I’ve been bad. You can see from my last post that I said I was going to blog more “in the coming months.” I guess I could spin it and say “Hey, less than 5 months later I am blogging again; 5 months – that is a coming month.” That would be BS. I have some excuses – so I’ll lay them out:

  1. Internet access in India is bad and I honestly can’t spend as many hours online as I’d like to because access is so bad. In my apartment, in Mumbai, after 11 months I still don’t have great broadband access. It’s often down. I’ve applied to MTNL (the local state run telecommunications monopoly) which has supposedto have a decent connection speed and reliability (where have I heard that before?) and like all good monopolies they told me to hold on and they’d get me internet access when they’re good and ready to give me internet access – current ETA about 2 months from time of installation. I tried the “Do you know who this is?” line.  :)  Unfortunately, I got a blank look and the lady said “Who?” It’s just not as effective when that happens and it was another reminder of how nonimportant I am.
  2. I have been really busy working my tail off and combined with #1 it’s just hard to spend the time to pretty up posts with the links and research you need to. The company I started a little more than a year ago, Komli, has grown to almost 30 people, and we are working hard to build some great products for our customers to make their lives better. That’s what we love doing.

Wow, I thought I had a whole list of reasons, but really that’s it. Okay, so my (late) New Year’s resolution is to start blogging more. I will start doing it, I promise. Mostly, because I want to start a dialog with folks about some topics of interest to me (and hopefully you!). I have a lot to learn from folks for sure.

Today, I’m really proud to announce our team has launched PubMatic into Alpha!

Check it out, and let us know what you think.

I’ll be writing a lot more about the publishing opportunity on the web over the coming months.  We really think that many web publishers and ad networks are leaving a lot of value on the table and can work together more efficiently and productively to improve their revenues and online advertising results.

Please drop me a line with your thoughts.

Om Malik of GigaOm writes that “The truth about Indian start-up scene is that there is more money than actual start-ups. We have talked about it before, and we will say it again. Venture Capitalists – both local and US-based are showering money on start-ups, some of them quite marginal.”

I’m not sure this is the correct conclusion.

The VCs that I talk to in India all seem to be investing at a pretty rapid pace, putting their $100-150M funds to work in 18-36 months. Yet, the deals that are getting done seem to me to be pretty decent. If you look at the portfolios of folks like Helion, Nexus, Sherpalo, and Matrix Capital India it doesn’t seem like they are doing stupid stuff, quite the contrary.

According to Ernst & Young, through the first 9 months of 2006 there was $178M of VC investment in India (about $240M on an annualized basis). For a country of 1.1 billion people and an economy growing 8-10% depending on the year, $178M hardly seems out of control. Even if it triples in 2007 to $720M it just doesn’t seem like that much (but that’s subjective).  Another way to look at this is that in 2006 the $13 trillion US economy had about $28B in VC investment (for every $ of GDP you had about two tenths of one cent of venture investment).  In India in 2006 you had a $804 billion economy with about $240M in VC investment (for every $ of GDP you had about three hundredths of one cent of venture investment).  Basically, the amount of venture capital being put to work in the US, adjusted for the size of the economy, is 7x that of India.  For India to have the “same” (economy adjusted) amount of VC dollars as the US there should have been $1.68B in venture investment (not $240M) in 2006.  Of course the US is a far more venture-ready environment than India, but a 7x differential seems pretty healthy.

On a slightly different note, I actually think the bar for Indian companies to be funded is higher than many in the US as most of the VC firms mentioned above are first time funds and are quite concerned about having too many failures in their portfolio. I’ve had several tell me that.

My conclusion is that it doesn’t appear that there is too much money. The other point is that if you look at the US the environment is pretty overheated there, with venture investment at record levels. There are 4 or 5 or 10 companies getting funded in every space.

Anyways, these are macro stats.  At the end of the day, if you focus on building a good business with a good team the fact that there is too much or too little money will be of little relevance.

The last installment of Harry Potter (Harry Potter and the Deathly Hallows) released on July 21st at midnight. The book was released at midnight (Friday night/Saturday morning) GMT (Greenwhich Mean Time, the time in Britain). This is 4:30am IST (India Standard Time). Because of all the hoopla surrounding the book security to make sure it wasn’t leaked was tight.

Eight hours later, at 12:30pm on Saturday, I was in a car in Mumbai on the way to brunch. While at a traffic light a book hawker approached us offering a hardcover version of Harry Potter and the Deathly Hallows for Rs795 (about US$20).

Man on the street selling Harry Potter

This is pretty amazing. This book was under intense intense security. There was one publicized leak that received a ton of press. So you have one of the most highly anticipated books of the year under a ton of security to organize a global launch, and 8 hours later it’s pirated on the streets of Mumbai?

The world is getting flat… information spreads like crazy!


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