Visitourwebsiteformorein-depthresearchandmarketcommentary:www.epoch.comScottEhrensManagingDirectorSeniorResearchAnalystAdriaMarkusVicePresidentResearchAnalystCONSUMERINTERNET-NOVEMBER13,2000P2P:PlatformstoProfitabilityIndustryThesisTheconsumerInternetlandscapehasgraduatedfromits“greenfield”phase,whereentrywaseasier,customeracquisitioncostswerelower,andthecapitalmarketswereforgiving.Today’simpatiencewiththeunprofitableisevidenceofatransition.Innovationisnowarequirement,andonlythestrongwillsurvive.E-commerceplatformsandonlinemediaaggregatorsareuniquetothemediumandcanattracthigh-marginrevenuesthatscaleexponentiallyatlittleadditionalcost.Thesecompaniesthereforeofferthemostattractivebusinessmodelsandthegreatestvaluepropositionforinvestors.Pure-playonlinecontentande-commercecompaniesthatrequirephysicalinfrastructuresimilartotheirofflinecounterpartsarefarlesscompelling.IndustryDescriptionConsumerInternetcompaniesofferonlinecontent,products,andservices.Onlinemediacompaniesgeneraterevenuesthroughadvertisingand/orsubscriptionservices.Revenuesforthee-commercecompaniesaredrivenbyonlinesales,eitherthroughe-tailerswhoopenvirtualstoresore-commerceplatformsthatearncommissiondollarsforhostingonlinemarketplaces.Webelievetheselinesarestartingtoblur,asthemostsuccessfulcompanieslearntogeneraterevenuefromtheiruserbasesthroughcommerceandadvertising.KeyPoints•TheBigWillGetBigger:AstheInternetmovesintoamorematurephase,webelievetoday’sleaderswillremainsomeofthemedium’slargestplayers,retainingtheirleadduetostrongbrands,awesomesizeandscale,andmanagementwiththewisdomofexperience.•OnlineMediaMonoliths:Webelievethefewonlinemass-mediacompaniesthathavesuccessfullyaggregatedcontentandeyeballswillcontinuetogrowandbringbest-of-breedcontentandserviceplayersintotheirfold.Independent,under-capitalized,nichecontentplayerswillbehard-pressedtosurvive.•E-CommerceIsaChannel,NotaBusinessModel:Webelievethebiggestmistakemanye-tailershavemadeisinthinkingofe-commerceasaseparatebusiness.Retailersareallinsamebusiness:customersatisfaction.However,e-commerceplatformsareanexception:byprovidingauniquebuyingexperiencenotavailableoffline(ofteninalow-cost,high-marginmanner)thesecompaniesofferauniquevaluepropositiontoconsumersandinvestorsalike.•ThereIsALWAYSRoomforInnovators:TheInternetisinherentlywithoutgatekeepers,sosomeofthebestideasareyettocome.Thereisalwaysspaceforthosewhocost-effectivelycapitalizeonthemedium,aslongasthereisconsumerdemandfortheiroffering.ScottEhrensAdriaMarkuswww.epoch.comTableofContentsInternet=Innovation........................................................................................................1We’veEnteredPhaseTwo..................................................................................................8Deconstructing“B2C”.....................................................................................................12OnlineMedia..................................................................................................................14E-Commerce..................................................................................................................25Valuation.......................................................................................................................32ComparableAnalysis............................................................
