By Allan Maurer
BOSTON, MA – Internet companies that rely on advertising for income will struggle, those with technology for improving online advertising efficiency will likely see consolidation, but software-as-a-service companies have seen their values holding up better than many others. So says Internet Summit participant Jason Trevisan of Boston and Seattle-based Polaris Ventures.
Trevisan focuses on growth equity and buyouts in the internet, technology, media, and consumer spaces for Polaris Ventures, a venture fund with over $3 billion under management and current investments in more than 90 companies.
He is one of many Internet focused venture capitalists, entrepreneurs and executives participating in TechJournal South’s Internet Summit Nov. 19 in Chapel Hill. The Summit, also presented by the NC Council for Entrepreneurial Development and Southern Capitol Ventures, has fewer than 100 seats remaining. (For more information or to register see: http://www.internetsummitevent.com).
Trevisan tells TechJournal South that Web 2.0, social networking, and digital media companies relying primarily on advertising for revenue are facing a tough outlook. “Ad dollars are not flowing as rapidly to the Internet as they were,” he says. “The amount may not shrink but it isn’t growing as fast.”
The ad dollars tend to focus on the top five or 10 Internet properties rather than the smaller niche sites, he adds. “Getting ad dollars as a small site without a critical mass audience is harder, but they can offer a more immersive experience for advertisers.”
He suggests those smaller sites without the scale offered by Yahoo, MSM, or AOL need to focus on doing that as a strategy.
“The ones with the best chances in this economy will be willing to create more custom programs for advertisers “can offer a really rich targeted branding experience and a more compelling return on investment, but it’s hard to do,” he says.
“They’ll need to bring new ideas to advertisers by creating compelling customer environments that are unbeatable.”
Companies offering online advertising efficiencies—and there are a lot of them, Trevisan points out, face “a huge shakeout.” Those companies, which sell ad network optimization and targeting technologies need something more than just another platform.
“The secret to their success is not just creating another optimization black box. That’s an arms race and there will be a better one next week. So it’s not a technology play. They need an operational secret sauce. That’s expensive but doable.
Software-as-a-Service companies, though, seem to be faring better than many other on the Internet.
“Look at how valuations plummeted in the last eight weeks,” Trevisan says. “SaaS companies held up the best. It’s fundamentally a better model (of selling software). It doesn’t require anyone to do big implementations or write a big check up front. It offers better communication and feedback among customers.”
The downside to SaaS, he says: “The barriers to entry are low.” To win, Trevisan says, “They need to crack the code of the sales model. That will separate those with great technology and home runs from those with good technology and good but not great outcomes,” he says.
A lot of experts say the current down economy is going to last a while, he notes. “It’s not a six month story companies need to weather, but a new world they have to work in. If you slow down the top line, you have to adjust the expense line. Try not to increase burn. Conserve cash. This is forcing everyone to look at their business and get a whole lot leaner.
But, he says, “Now is the time when you are able to out maneuver and outlast your more sluggish competitors.
Trevisan points out that Polaris still has about $500,000,000 of unallocated capital in its fund. “Now is the ideal time for entrepreneurs to partner with someone like us or our peers,” he says. “We have been through these sorts of downturns and know the patterns that occur and know how to work through them.”
On the Web: www.polarisventues.com
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