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Someone recently asked me to describe some of the broad themes / opportunities in consumer technology, specifically online. As I thought about it, four buckets came to mind — three verticals and one horizontal point.

Commerce. Household penetration of the Internet has reached mass market levels and is holding steady in the high-70s or low-80s percent of population. Practically everyone who spends money is online and the growth rate of the penetration is slowing significantly. This means two things to me. First, the competition among the major anchors of ecommerce is only getting tougher. Where previous growth was driven by how fast you could sign up new users (more meat in the grinder), now we are faced with a market where growth is limited by comp-user productivity. Comp-users are those you’ve already got; it’s a tweak on the offline idea of comp-stores. This is extremely tough for established ecommerce sites who may have underinvested in comp-user growth strategy. It’s extremely good news for Google. They are the only ones offering a large scale coping tool for big ecommerce players — adwords. Online retailers are going to have to battle for share of wallet mostly via buying bigger portfolios of keywords and more expensive clicks. And the crappier the major ecommerce players’ results are, the better Google’s should be as spending ramps among advertisers who are very concerned about making their top-line numbers.

The second notable think I think about ecommerce is the specialty retailing opportunity has never been brighter. This is true particularly for marketplaces. The recent announcement about eBay’s plan to acquire StubHub highlights how specialty marketplaces — with the right UI and the right pricing and product solution, can outmaneuver even the giants. I believe that Jeff Fluhr built an incredible business and that he should feel proud of the growth and the exit he led. The tickets category is but one example of specialty retailing opportunities online. I think it’s amazing that — to this day — there’s still no category specialty leader in branded apparel retail or marketplace. Zappos is making a good run at footwear — a tough business — but they have their work cut out for them on the UI front. It’s great to offer such a huge assortment, but the user is paying for it in the form of a confusing and very inelegant UI. If they got the design and the merchandising pieces nailed, I think their position would be a lot stronger. Of course, I still like marketplace businesses better than retail with inventory. But not everything can have software margins. Specialty retail can still offer good returns of 45-50% gross margin and I still believe in the beauty of online cost structures which lack real estate and labor components of offline retailing.

Third point on ecommerce: Science is critical and will only become moreso. Comp-user growth only comes from doing a better job at matching right product-place-time-price. The foolish and expensive investments made by some in collaborative filtering — no visible financial returns yet as far as I can tell — need to be ripped out and replaced with much more sophisticated behavioral predictive modeling based on a broader set of actions than just purchases. Clickstream, past visit behavior, as well as cross-sell and upsell recommendations based on human brainpower, all need to be taken into account to optimize a variety of end results. For example, sometimes you need to optimize for cart size / revenue per visit; other times, cross category migration is more important to lifetime value. There are a few companies out there that I think are particularly strong already on this path: CleverSet is doing cool work on recommendations in the shopping flow. Their solution is based on real science and it works for large and small sites — a key point. Large players handle a majority of the volume, but the small and regional merchants are increasingly on an equal footing with them competitively in search results, side-by-side in key marketplaces like eBay, and in the minds of the customers. Omniture surely is also worth watching in this area. They were one of the first and the best I think at bringing analytics to the masses of ecommerce — large and small. I am sure they know how important comp-user intelligence and the science of comp-user growth is to their market. I have no business relationship with either company other than that I am a fan of what they do and how they do it.
Finding. I’ll lump search and browse into a single bucket. Here’s why. I think that Google has made search into a nice, clean, productive experience. That’s good. But a keyword-matched list of URLs sorted into relevance order by a machine creates a blank space in my life where fun and serendipitous discovery used to reside. I love search, but I love bumping into things I never would have imagined existed — and no way could have found with keyword searching. I think this space of fun, discovery is pretty wide open. I’d like to see more people adopt the very cool StumbleUpon product; and I’d like to see the StumbleUpon capability more broadly available on the web. Try it and see what I mean.

Second point on finding … now that we have at our fingertips giant indexes of (tens of?) millions of urls and extraordinary volumes of content on the web, how are we going to structure it? Providing structure and order to the massive sea of stuff seems like a worthy pursuit to me. I think Google must agree because they are offering search results filters / structure in some searches. I’ve noticed it in medical related searches among a few other domains. However, the link-filters they are using are really unsatisfying. Perhaps this requires a specialty site approach where domain experts can focus on organizing what they know best (WebMD?). Perhaps the better alternative is to let practically anyone contribute their knowledge and structure as Messrs. Whales and Penchina suggest.

Advertising. It’s kind of unfortunate to see advertising — whether via AdSense or another platform — become a crutch for entrepreneurs. It’s probably one of the more depressing side effects of the 2.0 thing. I don’t begrudge anyone making revenue from advertising on their site. I just think that the boom in performance advertising, and to a lesser degree in graphical, has allowed some folks to stop thinking about how the value they create with their underlying content or services or products can be captured via pricing. I’d expect to see some kind of correction here of course, but the current infatuation with the broadcast television business model — free stuff with ads attached — is disappointing. There are lots of creative products and services that can be monetized more directly and with better long-term benefit for the businesses and entrepreneurs powering them. Advertising is great — in its proper place alongside a direct revenue strategy that is based on a careful and thoughtful analysis of the proper ratio of advertising to editorial content. (Yes, there is something to learn from the old-school publishing business.)

Technology. In The Innovator’s Dilemma, Clay Christensen defined technology as the process by which organizations transform labor, capital, materials, or information into products and services of greater value. I like that definition — and its two primary forms, disruptive and sustaining — in the context of an existing business. There’s another kind of technology though — let’s call it raw technology. It might be a new way to render web content, a new way to access or share information, a new way to generate electricity. But raw technology has been invented first without regard or foreknowledge of its application (especially commercially). It’s usually classified as something cool or something that solved a problem for the inventor her/himself first in the course of research.
Lately, there appears to me to be a comforting increase in the number and share of new ideas for businesses that are built on raw technology. The tricky part I think is productizing raw technology. Of the hopefully large set of things your raw technology could do, figuring out exactly what customer and need to apply it to is tricky stuff. And if you want a chance to work with this early stage stuff, you have to be physically located near the inventors. Universities, research labs, science centers are good places to look for raw technology. Personally, I have found productizing raw technologies to be a very rewarding and exciting thing to do. Putting air/water/sunlight on raw technologies and giving them productization time and attention, is the best way to keep a healthy balance between new ventures that are tech based and new ventures that are market-opportunity-based.

Category : Design, Stuff, Work