Thoughts on analyzing internet industry


The essence of the internet company

The Internet has two functions:

(1)to connect the real world efficiently 

(2)to create a virtual world

Most of the internet (also tech) industry’s revenue comes from the first function. The imaginations of internet (also tech) industry come from the second function to support their high forward PE and dream PE.

The first function of the Internet can be divided into four parts:

(1)to connect people with people

(2)to connect people with information

(3)to connect people with goods

(4)to connect people with service.

(A product or company may be related with multiple parts).

A few examples:

  1. IM and SNS are examples of connecting people with people.
  2. Searching engines, Newsfeeds, and content providers (streaming media, such as Spotify and Netflix) are examples of connecting people with information.
  3. E-commerce (BABA, Amazon, and eBay ) are examples of connecting people with goods.
  4. Online to Offline (Uber, Groupon) are examples of connecting people with service.

As you see, couple 100b companies growth from each part of the connection. The business of the internet is to sell traffic. The measurement of the Internet company is:

  • The quantity (amount of user and time) of traffic.
  • The quality (ARPU, Average time user spend, positive effect from users (like an attractive girl on tinder) etc. ) of traffic.
  • The cost (the maintain cost, acquisition cost) of traffic.
  • The character (the traffic WhatsApp can not monetize efficiently by using newsfeed or displays) of traffic.

More thought on to connet people and information)

In network effect or moat:

Instant message > SNS > content provider > UCG

Frequency, Orginal, and threshold of UGC are the two most important parameter.

  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 the relationship with A.
  3. The threshold of UGC

Again, those are just the general rule.

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

qualitative analysis is always important than quantitive analysis,

and qualitative analysis is always important than quantitive analysis. 

Blog at WordPress.com.

Up ↑

%d bloggers like this: