Redefining how we think about media and the internet (Part II)

Looking at one of my favorite sources of information (SeekingAlpha), I stumbled upon two very interesting pieces that seem to support some of the arguments I made in Part I. I have included a link for your reading pleasure. Enjoy.

• Another blow to newspapers: Facebook classifieds http://media.seekingalpha.com/article/35302
• Do newspapers and public ownership not mix? http://media.seekingalpha.com/article/35215

Redefining how we think about media and the internet

Once again I was inspired by Google. It was reported that Google is likely to accelerate the pace at which it makes acquisitions and will consider larger deals. The company currently has close to US$10 billion to spend, and it is estimated that it is buying one start-up company a week. The news comes on the heels of the DoubleClick acquisition, and the announcements linking up Microsoft and Yahoo.

So what exactly is taking place, what are the market forces driving all this activity, how are the people at Microsoft, Google, and Yahoo looking at the space? I believe that it can be narrowed down to the following three drivers:

• Increasing relevance of internet advertising. Advertising has suffered such a steep decline in traditional media that many often overlook the future it will have on the internet. As broadband access becomes more widespread, so does internet usage, and the internet is fast becoming the next frontier in advertising. Currently, internet advertising as a % of total advertising stands in the single digits. Yet the internet is a marketers dream. It allows you to segment audiences and better target advertising. Tools such as Google Analytics were created for the purpose of improving efficiency in advertising, giving marketers the chance to better measure ROI, as well as measure traffic. More importantly, it gives advertisers the chance to better understand how to reach the consumer / target audience.
• Focus on user generated content. Focus on user generated content is clearly becoming a priority. That is why Rupert Murdoch bought MySpace, and why Google wants to make acquisitions that play a larger role in this segment. The beauty of the internet is and will always be that it provides the user the ability to create his or her own content; it allows the user to interact and participate. You have the freedom to create a profile and add pictures, or to write (blog) your opinions and publish your thoughts. You can share videos, music, or even live in your own created World Wide Web universe (Second Life). I recently read a piece that stated: “the internet has virtually demolished the barriers to entry that exist in broadcast media and print publishing which require large upfront capital investment in equipment and technology.” Better yet, the internet is re-defining media everyday.
• Evolution of the internet. The internet is fast becoming a place where at the touch of a keyboard we can shop, search for a job, search for a house, apply to schools, read the news, and do pretty much everything we need or want. And users are becoming more comfortable with the idea - something that was not so about 3 to 5 years ago.
  

These three factors play a significant role in my decision making when it comes to internet related stocks (or “new media” stocks). When looking at names such as AKAM, VCLK, GOOG, IACI, or KNOT, I ask myself what is their role or how is it impacted by these market forces.

Overall, I strongly believe that these drivers should be used as guidelines for how we think about the growing relationship between media and the internet. Who knows, they might even hold the key to Google’s next move.