Consumer, Media and Marketing Services (CMMS) - An Overview

The penetration of personal computers, ubiquity of broadband and the widespread acceptance of the Internet have already and will continue to fundamentally affect and permanently alter consumer behavior along a number of critical dimensions creating new industries and practices in the process. Faced with the rapid evolution of consumer behavior patterns, it is no surprise that the CEOs of almost any consumer-facing enterprise are re-thinking their strategies for customer acquisition, customer retention and customer interactions and communication. At General Atlantic, we address these developments and newly emerging opportunities under the umbrella of the Consumer, Media & Marketing Services (CMMS) sector. In this CEO Topic, we focus on a few key trends implied by these shifts in consumer behavior and our recent investments in both the US and emerging markets.

In the US alone, the number of Internet users has doubled from 100 to 200 million over the past five years. In addition to the growth in the absolute number of Internet users, the average amount of time spent online also continues to rise as users become more sophisticated and new applications emerge. Over the same period of five years, the average time spent online has risen by 30% from less than 10 hours per week to over 13 hours. Today’s consumers use the Internet to email and to obtain news, information, research, shopping, entertainment and personal finance. Traditional offline activities, such as buying real estate, attending a university or finding a job are rapidly migrating online. Younger generations have increasingly found new ways of interaction with the online world, including blogging, social networking and online dating. In other words, simply “being online” has become a growing category of spending free time, shifting time away from traditional activities and media sources (i.e. the newspaper and television).

Advertising dollars have always followed their target consumer audiences, and changing media consumption behavior is fundamentally impacting advertising strategies. Online ad spend has increased from virtually zero in 1995 to approximately $13 billion in 2005 and is expected to grow at over 20% annually in the foreseeable future. Conversely, traditional newspapers are fighting significant declines in circulation and ad budgets. The shift of both national and classified advertisers to other media has forced many traditional publishing houses to restructure and re-evaluate core strategies while creating opportunities for new enterprises focused on the digital and online media channels. Our investment in Dice, Inc., an online recruiting services company specializing in IT, represents our conviction that the classified recruitment advertising market is particularly well suited for automation of the flow of user-generated interactions between the fragmented employers marketplace and job seekers. Zagat Survey, the premier provider of guides for restaurants and other leisure venues, has successfully expanded its publications to an online service. There are many other segments of this market that will continue to migrate online.

Web commerce is no longer a nascent business, and customer monetization and retention has become a core focus that is increasingly outsourced by online merchants to third parties. Communities, user forums and membership groups have become a very powerful model to capture large online populations, offering a potential to collect significant amounts of extremely valuable consumer data. Webloyalty, a leading of provider of affinity marketing programs to online retailers and publishers and a GA portfolio company, is one high growth firm catering to this growing base of more sophisticated online retailers.

The most pronounced convergence of media is taking place between mobile and Internet usage. From simple value added services, such as downloads of ringtones, the new consumer generation has quickly embraced advanced data services, including music, video, gaming and broadband mobile access. While the US market offers exciting opportunities, different mobile technology standards have slowed the market growth relative to Europe. At the same time, emerging geographies, such as China and India, are poised to benefit from their large installed base (China is the largest mobile market globally, with 390 million users, and second largest nation online, with approx. 111 million users, of which 64 million are broadband). As technology evolves, we are witnessing increasing convergence of single-user to multiple-user environments, including communities (with advertisers following the consumers) and massively-multiplayer online games (with the strongest footprint in the Far East). Oak Pacific Interactive, a leading wireless and Internet entertainment company in China, is our most recent investment in the CMMS sector that capitalizes on these trends. This company represents both our continued strong interest in China and our strong belief in the massive shift of consumers to online platforms.

An increasing number of traditional consumer-facing industries are being transformed by the Internet, creating high-growth opportunities for new and existing businesses that embrace the changes and incorporate the Internet into their core business model and customer relationships. As a capital provider with deep expertise in this area, we are very excited about the prospects ahead. For more information about our CMMS sector and our expertise in this area, please contact your GA team.