Internet industry

Empowering–the essence of the internet company

The significance of the internet industry is to empower other industry.

To empower means to make it more efficient

Like electric power companies, internet companies do not produce value alone but produce value through empowering other companies.

In some specific industries, internet companies develop efficiency too much from quantitative change to qualitative change, and then those particular internet companies can overturn traditional companies. Amazon is an example in the retail industry. Twitter is an example in the media industry.

The natural character of the internet industry

The internet business naturally has the network effect, the economies of scale, and the exclusive character.

Some business, like IM, searching engine, have strong network effect, strong economies of scale, and the exclusive character, so the first place takes more than 80% market.

Some business, such as media-services provider, have weak network effect and do not have the exclusive character, so the top company cannot produce the cumulative abnormal return.

To B

To B is the industrial internet:

  1. To sell the tools and service to make the company more efficient in its main business:
    1. AWS, Dingtalk

To C

To C is to connect people with something more efficiently:

(1)to connect people with people

(2)to connect people with information (content)

(3)to connect people with goods

(4)to connect people with service.

Couple examples:

  1. Tinder, messenger, and iMessage are examples to connect people with people.
  2. Google searching engine, Facebook newsfeeds, Netflix, and Spotify are examples to connect people with information.
  3. Amazon.com, eBay, and Pinduoduo are examples to connect people with goods.
  4. Uber, Airbnb, Paypal, and Booking.com are examples to connect people with service.

A product or company may be related to multiple parts, for example:

  1. The WeChat is not only able to connect people with people but also to connect people with goods, information, and service because of the WeChat Pay, WeChat group, Moments, and Mini program.

From the experience of WeChat, the trend of the internet industry can be recognized which is that the newly generated information is sealed in the enormous apps rather than the open internet as the growth of mobile internet.

Traffic

To sell traffic or goods are two general business model.

The Key measurements of the Internet company which has the business model to sell the traffic are:

  • The quantity of traffic.
    • Amount of attention of users
  • The quality of traffic.
    • The value of ARPU, Average time a user spend, and positive effect from users 
    • For example, Trump is a
  • The cost of traffic.
    • The maintain cost; the acquisition cost.
  • The character (the traffic WhatsApp can not monetize efficiently by using newsfeed or displays) of traffic.

Trend

In the most developed area, the dividend of the internet is gone.

The industry is changing from product-driven to operation-driven.

The AI era is coming with the data-driven.

More thought on to connect people with people and people with information

For network effect or moat:

Instant message > SNS > content provider > UGC

Frequency, Orginal, and threshold of UGC are the three most important parameters.

  1. Frequency: it is too complex to explain. The rough summary, DAU/MAU
  2. Original: The original information for a user, A, is the UGC made by users who have a relationship with A.
  3. The threshold of UGC

Attention

In my opinion, for investing, qualitative analysis is always important than quantitive analysis

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