(by Marc Ziegler)

In 2011, over 940 web companies in the fields of ecommerce, advertising and digital media have been funded by US investors with a volume of more than 13,6 billion US$. This is the tip of the iceberg of our analysis that investigated most investments by US venture capital companies and business angel in 2011. Beside the data we collected, I wanted to find out, which specific trends in each of the most relevant web business segments can be derived from the identified investment patterns and which impact these trends will have on investment behavior in Europe/Germany.

Yes, there are hundreds of successful European, truly innovative startups out there, but the global web & digital media business is clearly dominated by players from the USA. Market dynamics and all major trends are constantly determined by US tech companies, whether we Europeans like it or not.

Goal of my analysis was to grasp these market dynamics in digital media business at an early stage in order to derive business opportunities for European startups prior to “common sense” observations. The analysis suggests that US investors have a higher risk taking culture than their European, especially German counterparts and have an acute awareness for future web opportunities.

Therefore, the analysis focuses on investments, primarily carried out by US investors, although our prime source (Crunchbase) includes some investments by non-US companies (< 5%) that have not been sorted out.

The findings of the analysis do neither claim to be complete nor free of overlaps, nor to be a guide for cloning other hot startups. This report is simply a useful tool for founders and investors to challenge own market observations – not more, not less.

How we conducted the analysis

Basis for the analysis was Crunchbase, a database that encompasses nearly all tech fundings by US investors. We searched for all investments between 0,1 million and one billion US$ in the timeframe of January through December 2011 that have an apparent focus on ecommerce, advertising and digital media. In a second step we clustered the identified companies/fundings into the 12 most relevant segments.

In the course of this segmentation it became evident that these clusters cannot be clearly delineated from each other as most identified startups offer various product features that theoretically apply for two or more clusters. In these cases we decided for the most obvious business DNA of the respective company.

After the quantitative part of the analysis (see details in the above slideshare presentation) I tried to grasp the new business mechanics within each of the identified web segments and derived market trends that might shape the web industry for the next 12 months.

And here are my conclusions:

Overall conclusions:

• “Consumer web” topics (although this is a rather fuzzy aggregated notion for B2C-related web business) remain investment segment No. 1 in digital media.
• However, investments in B2B startups are unmistakably on the rise, especially in seed, angel and series A rounds. It remains to be seen, if German investors follow that line.
• The leading position of e-commerce platforms & advertising solutions in the investment ranking reflects the top-relevance of their corresponding business models within the global web eco system – and will dominate investment activities in the future too.
• Productivity apps/tools and – slightly behind – crowdsourcing services gain momentum and are firing the imagination of investors in Europe/Germany too.
• Within all “older” digital media categories (such as content, e-commerce, search, social networks) a higher degree of specialization along the following parameters can be observed: social-local-mobile (SoLoMo), contextual, rich media, real-time, personal/on-demand, Facebook-integration etc.
• The hottest overall company? Impossible to tell! There were so many innovative startups with disruptive potentials. Find out yourself. There are a couple mentioned within my slideshare presentation (see above)

Specific trends

Here are my personal top 30 trends (sorry for the large amount) I derived from the analysis and I would like to share with you:

I. Ecommerce

1.) Group deals, daily deals and couponing had been investors’ darlings in 2011, but a stronger verticalization could be observed – especially in the fields of fashion & apparels, grocery, home design and mums & kids.

2.) Neighborhood commerce: eTransaction on a local scale gain momentum. Mostly people from the neighborhood offer goods and services to lend or to sell. Most interesting topics are car sharing/mobility, cooking, nanny services and flea market articles.

3.) Socially assisted commerce: Another serious ongoing trend is social shopping. Companies in this field of business support interaction and contain user contributions and recommendations to assist in buying products & services.

4.) UGC monetization: Platforms that convert user generated content into sales. Most of these sites deal with design, photos and articles generated by community members.

II. Advertising solutions

5.) Targeting solutions with a higher sophistication such as cross-platform campaign performance tracking, search-retargeting and targeted television advertising. Across all funded targeting solutions in 2011 a stronger specialization on social media aspects and contextual behavior could be observed.

6.) Real-time bidding solutions, to me the supreme discipline in the digital advertising space, match supply and demand of ad inventory as well as performance adjustments in real-time – similar to Google, with potentials for hub role within the advertising ecosystem.

7.) Data-driven marketing: These are big data solutions that analyze ad performances across multiple platforms, retrieve demographic trends and deliver inventory accordingly or analyze millions of local data for contextual ad delivery.

8.) In-app, in-game and in-video solutions support the monetization process within the mentioned media formats. In most cases, monetization is enhanced by analyzing user behavior (clicks, social media communication, purchases etc.).

III. Productivity apps/tools

Beside file and information management tools like Dropbox, Box und Evernote over a hundred productivity apps/tools for other purposes have been funded, especially …

9.) Personal finance tools, helping to better organize everyday’s finance life related to accounts, debts, loans, bills, receipts, fixed expenditures, bank transactions etc.

10.) Content production & discovery tools that ease the self-production, adaptation, organization & discovery of various media assets such as pictures, videos, music, articles etc.

11.) Learning & education tools that enhance personal learning experiences by tracking learning progresses, exchange & benchmark skills with others, grade tracking etc. – mostly in the fields of language, college and science.

12.) Personal communication tools that improve cross-platform communication capabilities such as inbox notification management, dialing without numbers, real-time radiation indication etc.

IV. Games

13.) Social browser games (yes, still): Players in pursuit of finding unique selling propositions in the space of social games. These new “playing grounds” have been for example: cross-platform distribution approaches, mobile, augmented reality, social benchmarking, kids, edutainment.

14.) Gamification of real-world markets: Non-entertainment companies increasingly discover the power of games to address real-world challenges, e.g. in the fields of health/wellness, education, research, recruiting etc.

15.) In-game monetization: Beside pay-as-you-go and subscription-based gaming business models, various in-game revenue sources have been developed: real-rewards for in-game achievements (based on interchangeable “currencies”) as well as performance-based advertising tools.

16.) Cross-platform gaming middleware such as rapid game creation technologies or solutions for cross-platform game development.

V. Content

17.) Enhanced music/audio experiences: these are platforms & tools for increased digital audio excitement such as creating & sharing audio content in real-time, detecting music, do-it-yourself music-related apps and music personalization suites.

18.) Next level of content discovery: Platforms that intelligently aggregate content from various sources & channels to create new (and mostly dashboard-driven) user experiences, whereas the focus of these sites varies, either by type of content or by distribution platform.

19.) eLearning platforms & tools: Environments for creating, sharing & discovering learning materials as well as curricula with co-students & teachers. These are for example video-based learning communities, social prep-center, online course creator suites, interactive tutorials for coders & designer.

20.) Multi-channel video sharing and casting: Web video entertainment beyond youtube, such as sharing mobile videos in real-time, social live video casting & communication, social video uploading and VOD services.

Further hot topics in the content segment were: social TV guides, textbook rental sites, eBook hubs and tech & financial content sites.

VI. Crowdsourcing

21.) Crowdfunding & Crowdfinancing: Enforced by tremendous success of kickstarter, various other crowdfunding platforms evolved that have specialized in social projects, private investments, creative ventures and big ideas.

22.) Crowdsourced labor/jobs/tasks: Platforms that target companies who outsource tasks to the crowd (and users who search for such tasks) in the field of design/graphic arts, programming, translation, text creation, research etc.

23.) Enterprise/brand empowerment: Solutions for corporations that engage and activate brand audiences, especially within social networks to measure brand awareness and for assistance to “spread the word”.

24.) Community opinion aid: Platforms that help individuals to sort out the wheat from the chaff in terms of “taste benchmarking”. Mostly, these sites are related to fashion, food, entertainment, travel and lifestyle.

VII. Search

The search investment cluster does not reveal as many distinct trends as previous clusters. However, as in the years before, most of new search platforms tend towards increased specialization and include SoLoMo functionalities.

25.) App search & discovery: Platforms helping to search for apps in general (“experience new apps”) or business apps in specific. Most of these platforms include reviews from the community. Others help companies for a better market research.

26.) Travel-related search: No, the digital travel market is not yet saturated. Within this segment many platforms have been funded that allow a better search experience beyond monothematic queries, mostly fueled by community know-how. Some features of these sites: multi-parameter requests, finding private homes to stay, reviews about regions by locals etc.

27.) Job-related search: even the highly contested job search market generates new approaches with supporting specs: internship search, job-related metrics, employer reviews, job advises, focus on job verticals etc.

VIII. Location-based services

Due to the small and heterogeneous field of players in this segment, few distinctive trends could be retrieved. The small number of “pure” LBS companies results from the fact that LBS features are often integrated into products with a different core/DNA.

28.) Geo-location services: Investors identified geo-location related services as a promising field of business. These services cover a wide range of functionalities and focus, such as real-time location tracking, family tracking & neighborhood safety, find interest-alike people nearby and location-based gaming elements.

Other location-based service that got funded – but no distinct trends – were: P2P/NFC mobile payments, WIFI location solutions for retailers, LBS-enhanced local search, local guides/ local discovery, location-based social networks (e.g. for mums & dads), urban navigation services and on-demand delivery services.

IX. B2B digital media software

There were over 200 companies that got funded in 2011 addressing the B2B market with software solutions and tools. I distinguished between “B2B solutions” that boost other companies’ digital media business and “B2B tools”, increasing the efficiency of digital media processes within companies.

29.) B2B solutions: Very hard to pinpoint accurate trends, but the following solutions stand out a little: Cross-platform app development suites, context-sensitive commerce platforms, mobile payment solutions, video management platforms and publishing & video monetization service modules.

30.) B2B tools: … same applies to B2B tools, but social media analytics, social media engagement tools, adaptive eLearning tools as well as big data visualization tools are worth to mention.

Investment radar for Germany/Europe

Having derived the above trends, I wondered which of these might have the highest impact on investor’s priority list in Germany/Europe in 2012. The following slide reflects my personal opinion on what will be “hot” or not in investors’ deal funnel this year. I benchmarked my view on this topic with two relevant German investors who majorly agreed on my interpretation. However, there might be different point of views on the positioning of single trend bubbles in the matrix.

Assuming that pitching team (with a product in any of the mentioned areas) is excellent and their respective product has a unique selling proposition, the following trend cluster might have a higher chance to get funded by German investors in 2012 than others:

• Real-time bidding (like Turn in the US and mexad in Germany)
• Next level of content discovery (like Pinterest or Flipboard in the US and Pinspire or moviepilot in Germany)
• Targeting solutions (like Audience Science in the US and nugg.ad in Germany)
• Travel-related search (like Kayak or Couchsurfing in the US and Holidaycheck in Germany)
• Personal communication productivity tools (like SocialDial in the US)
• Neighborhood commerce (like Eggdrop in the US and WhipCar in UK)
• Social commerce (like Etsy in the US and DaWanda in Germany)
• Multichannel video platforms (like qik in the US)
• Crowdfunding / crowdlending platforms (like kickstarter in the US or Seedmatch in Germany)
• Enhanced music experiences (like Spotify, last.fm or simfy)

It is quite obvious that all other product areas will not fall out of investors’ favor, but the likelihood to get funded might be higher in the above-mentioned trendy areas. Especially in the field of B2B solutions & tools a positioning in the “hot-or-not-zone” of the matrix remains difficult due to the highly heterogeneous mix of possible software technologies.

However, in comparison to the hot investment clusters, the perspectives for gaming and crowdsourcing might in general be lower within the German capital market in 2012. According to the investors I spoke to, these clusters bear a high user scaling potential but offer rather low monetization opportunities. But as always, there are exceptions to the rule.

Last, but not least, I would like thank my colleague Sebastian Lautwein for his support, who gave me a big hand in the first phase of this analysis by identifying and clustering hundreds of startups.

Thank you for your endurance to read this article to the end. I would be happy to receive your comments – no matter if you agree or disagree on my conclusions.

Cheers

Marc

marc.ziegler@medien.nrw.de

Twitter: @medienziegler

LinkedIn

See also related post by Dr. Holger Schmidt (“Netzökonom”) on Focus (print & online)

Schlagworte: Advertising, advertising solutions, Business Angel, clone, copycat, crowdsourcing, crunchbase, Deal-Flow, digital advertising, eCommerce, Facebook, Germany, Google, investor radar, location-based services, Marc Ziegler, neigborhood commerce, productivity apps, real-time, real-time bidding, Riskokapital, search engines, Silicon Valley, travel, VC, VC Deal Flow, Venture Capital