How the Web will make winners and losers in 2011
A year ago, hardly anyone was expecting either Angry Birds or Groupon to be among the rising stars of 2010. But the underlying trends that powered their success were plain enough. So while it's nearly impossible to predict with much accuracy which companies will be the hits of 2011, here are five trends that may help separate the year's winners from the losers.
1. Big advertisers go social
Facebook's estimated $2 billion in revenue is a fraction of the $26 billion in online ad spending. But it's certain to grow larger as big advertisers spend more of their budgets on social networks - a market that for the time being, at least, Facebook dominates.
The most remarkable thing about that shift is that big brands like Coca-Cola (KO) don't really understand why social network ads work, but they're plunging in anyway. It's enough to see that Coca-Cola is liked by 21.6 million people, and that click-through rates rise once a brand is liked by someone's friends. Even though there's still no surefire formula for effective Facebook advertising, deep-pocketed companies are learning to love being "liked."
2. Local gets aggressive
The changes 2011 will bring will affect more than just the big advertisers - they'll create new incentives for small, independent businesses to advertise online as well. E-coupon sites like Groupon are just the first wave. The mobile Web is ideal for helping mom-and-pop shops set up features to entice loyal customers into online relationships while reaching out to potential new customers.
However, there's a catch: Local doesn't just mean small businesses. As Groupon has grown, it has started offering more deals from big companies, moving past the small businesses it built its initial success on. Local Web advertising could quickly become a platform for big national chains, and the mom-and-pop entrepreneurs could get lost in the shuffle.
3. The introverts speak up
With more than 500 million members, Facebook's growth seems assured for some time. But its growth may reach saturation at some point. For every active Facebook member, there's a holdout who's concerned about privacy. For every new member who signs up, an old member stops signing in frequently because the site has lost its allure.
So social networks need to evolve to make the Web introverts - those who choose not to be visible on social networks - feel comfortable about signing on. If Facebook can't preserve its members' privacy in a way that appeals to these holdouts - or if it stops adding new twists to make its site an everyday draw - it will open up opportunities for rivals to eat into its market share.
4. Privacy becomes a corporate priority
It seems like hardly a month passes without some news of regulators taking a hard look at Web privacy practices. Also growing common are class actions like the one recently filed against Apple (AAPL), which claimed a breach of user privacy on iPhone apps.
Companies won't stop collecting data, but they will have to take convincing measures to satisfy regulators, privacy advocates and, ultimately, consumers that they aren't misusing the data they're collecting. The problem is, all that information is crucial to their business models: The more data they collect, the more money they stand to make. Finding a balance will be a complex but essential task in 2011.
5. The Web bubble deflates
Now that Goldman Sachs has given Facebook a $50 billion valuation - 25 times the company's estimated 2010 revenue - it's hard to argue the Web isn't in a bubble anymore. But this bubble seems contained to the private markets, and the disconnect with valuations in the public market is growing.
All it could take is one high-profile Web company braving the IPO process to change this. After all, it's nearly impossible to short a stock in the private markets, but it's done all the time in the public markets. An IPO - whether for Groupon or Facebook - would almost certainly see a speculative surge early on. But any disappointment in the financial data would reverse the rally, sending shock waves throughout the venture capital market.
Of course, precisely when a bubble will end is one of the hardest things to predict. But though it will be somewhat painful, a correction would be a welcome event sooner rather than later. The longer it takes for the Web bubble to deflate, the more destructive the correction will be when it comes.
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The article was originally published on DailyFinance.com