The massive changes occurring in video production, distribution, and consumption has unveiled better investment options. Consumers are watching online video on sites such as Hulu.com and YouTube and, particularly in this recession, via video-on-demand (VOD) on TV. They are also using social networks to find and share their favorite shows and movies. These consumer-driven habits have affected everyone in the media delivery chain from movie studios to cable TV operators to consumer electronics makers and other service providers. The digital media sector too has no dearth of credible ideas, as it witnesses a steady flow of capital.
A second trend is the massive adoption of consumer applications, and in particular casual games on social-networking and mobile platforms. Games in this new genre combine the quick and easy access of Web based games with a graphical quality that is comparable to many console games. Innovative monetization models like ‘virtual goods’, which are emerging as a powerful revenue source for game publishers, fuel the growth in this space. Apart from the media and consumer applications, cloud and software-as-a-service (SaaS) are emerging as the next best options. These two areas, which are closely related and quickly merging, comprise infrastructure and applications, which are hosted outside a company’s private network and accessed via standard Web services. Independent software developers and even large enterprises adopt cloud infrastructure and applications as the benefits of reduced upfront capital expenditure, lower total cost of ownership, and ease of implementation exceed concerns around security, latency, throughput, and restricted ability to customize.
I am personally very interested in the digital home entertainment arena at the intersection of consumer electronics and the Internet. In the near future, we will see interactive connected HDTVs, which behave like the iPhone and on which consumers will be able to watch video (streamed by their service providers or via the Internet), browse the Internet, and interact with new categories of applications. We may also see disruptive innovation with remote controls and mobile applications that enhance the digital home entertainment experience. It is not clear how this ecosystem will evolve, as there are powerful incumbents like TV manufacturers, service providers, hardware game consoles, and content providers and innovative technology-enabled companies (like Netflix and Amazon). Nevertheless, it is an exciting place to be for entrepreneurs and investors.
With the increase of market share and endlessly challenging fundraising environments, entrepreneurs should prioritize cash conservation and getting to profitability. They need to focus on the most important customer problems to solve them by building products and services in the most capital-efficient way. Take a hard look at sales and marketing productivity metrics and build a strong financing syndicate that can help you outlast the economic environment. If you are thinking about starting a new business, reflect on the hard questions. Are you solving a big pain point? Are you well differentiated and can you sustain this advantage? Is the market large enough to make it a worthwhile investment of your time and energy? If you are convinced, then this is a great time to start a truly innovative idea, as big companies have shrunk their R&D budgets and great talent is readily available in this market.
The author is Partner, Valhalla Partners