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Will the enterprise market spend significant IT budget on Windows Vista in 2007?



Why BA Ventures likes Consumer Deals

By Sharon Wienbar, Director, BA Venture Partners

As a team, the software group at BAVP frequently reviews our “investment thesis,” fancy words for where we think we can make money. We’ve traditionally been…well… traditional, with high ROI enterprise application deals, but lately we’ve been drawn to more consumer or end user companies. Why?

One goal is portfolio diversity. We track our companies in three buckets: CIO or infrastructure software, line of business applications, and end user companies. In the bubble’s peak we focused on IT software because it was the only credibly investable area—the multi-hundred million dollar valuations of application and internet service companies were doomed to lose money for VCs. Now that we have a stable of capable IT companies, and our biggest end user company, PlaceWare, is about to become part of Microsoft, we want to rebalance.

But the more compelling reason is that old saw: it’s where the money is. Compare these factoids about enterprise software versus end user:
  • Comdex attendance in 2002 was down 50% from it’s peak in 2000, while the Consumer Electronics Show was up 17% from last year
  • 49% of CIOs underspent their 2002 budgets, with consumer spending is up 3% in 2002, and online spending is up 35%
  • Siebel’s revenue is down 18% Q4 ’01 to Q4 ’02, while eBay is up 89% in the same time.

  • As we started to dive deeper into what’s on the web, and especially looked at consumer internet services and digital imaging, our software team associate, John Cherniavsky studied the ComScore report of the top 10,000 web sites and found some intriguing trends. Not all these areas are target investments for BAVP, but they make for amusing reading and wry comment on the internet user.

    The following interesting facts are about web page views in December 2002; ranks are in ( ), monthly page views in [ ]:

  • eBay rules the net: eBay's US site is 5th, their German site is 11th, and their British site is 25th. In fact, eBay appears 5 times in the top 200. By comparison Amazon shows up in the top 200 3 times, with its best showing at 23rd. [10B, 3.3B, 1.3B, 1.5B page views respectively]

  • Lonely? You're not alone: There are 16 easily identifiable dating sites in the top 10K. The top 3 are Match(20), MatchMaker(110) and jDate(147). [1.5B, 403M, 283M]

  • A snapshot of photo websites: Ofoto (607) [60M,1.4M unique viewers] outranks SnapFish (1032) [30M, 1.15M unique viewers] outranks ShutterFly (1633) [17M, 1.08M unique viewers]. But photos.Yahoo.com seems to have 194M page views and 10M unique viewers, beating all of the above combined.

  • Hmmm: Xbox.com (312) is directly followed by Cheatcc.com (video game cheat codes). [~130M page views each]

  • Way to go Craig: Craigslist.org (386) is the 5th most popular .org on the net and more popular than Ameritrade and Nokia. [100M]

  • Not so high culture: HotOrNot (127) and Walmart (129) are more popular than any .org site, the closest of which is cricket.org (198) . [327M, 327M, 206M]

  • Not so big banks: Two of the above beat the most popular bank, BankofAmerica (172). Next is CitiGroup (187) and WellsFargo(208). [241M, 221M, 200M]

  • What's more important than news: bride.ru (mailorder Russian brides) ranks 247, which is 2 above NY Times.

  • Finally, the world's most popular news site is IndiaTimes (62) followed by CNN (80). Both are soundly beaten by CartoonNetwork (45).[675M, 575M, and 800M].

  • So, with game cheats and Russian brides tops on this list, what’s a VC to do? BAVP is already deep in some consumer trends, and launching into others. Some of the opportunities we see include:

    Services enabled by broadband access

    Broadband reaches about 60M homes and generates over $20B annually in service revenue. We believe mass adoption of broadband will enable lots of new service opportunities. We already ride this wave with investments in providers of personal firewalls (Zone Labs), web conferencing (PlaceWare) and travel access (WayPort), all of which are already large businesses with growth rates driven by the massive market shifts.

    Other emerging businesses we’re tracking for potential investment include streaming media services, multiplayer online games, shopping, and online education. As an example industry, online dating generates $300-$500M in annual revenue in North America alone.

    Digital Imaging

    Digital cameras and associated goods and services are sharply eroding the film business. The overall photo processing market is about $25B a year; as one exec said to me, “you can find a lot of $100M niche markets in a $25B business.” Online photofinishing has already approached the $100M mark in annual business, and should explode as broadband access takes off.

    As digital cameras continue to gain mass adoption the likelihood of people getting good quality pictures out of their cameras and printers goes down, and so does their ability to do anything about it—I worked at Adobe for over 7 years and never learned PhotoShop. BAVP is currently working on an investment that provides an internet service to automatically enhance consumer digital images for about the price of a good print. This service can be used both to enhance pictures for sharing and keepsakes as well as those to use in online auctions, classifieds and personals.

    Enterprise software isn’t going away; many billion-dollar application categories are growing at 20+% and provide attractive prospective investment. Some of the highest growth categories, according to IDC, are analytics, messaging and datamining. Enterprise software execs should keep an eye on consumer trends because they cross over to our businesses: instant messaging in enterprises is exploding, as is PDA usage, and voice over IP is becoming credible. But we’ll all have to run hard to keep us with eBay, who went from $0 to $1B in six years. Here’s to trying!

    At BA Venture Partners, Sharon Wienbar works with enterprise software and Internet infrastructure and services companies addressing high value business issues. Sharon sits on the board of Stratum8 Networks and works with BAVP's investments in PlaceWare, OuterBay Technologies, and XTRA Online. She can be reached for comment at: Sharon.Wienbar@BankofAmerica.com

    Prior to joining BA Venture Partners, John Cherniavsky worked in the database infrastructure group of Clarify / Amdocs. He has a BS in Engineering from Harvey Mudd College. He can be reached via email at: john.cherniavsky@baventures.com


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