I'm in the Icemax - sorry, iMax - at Waterloo for Library House's Mediatech event, and victim of its ferocious air conditioning. Between icy blasts, I've been listening to an extremely well-attended session focusing on the strategies that investors and big new media companies are pursuing. There's some real insight here and Google, Yahoo and a couple of investment companies are speaking.
The message from investors in the new media industry is simple: businesses must focus on building audiences and, eventually, advertising revenues will catch up and make the business pay.
Yahoo's director of corporate development Jonathan Wolf said that in Europe, which he described as "significantly more interesting than it has been for a long time", Yahoo is focused on identifying start-up companies that can create products with a large number of users with just a small amount of capital.
"Entrepreneurs used to have to come up with a convincing business plan for an investment of about $5m and convince a bunch of guys in suits in Mayfair," he said, adding that proliferation of broadband, open source technology and a sophisticated and keen web usership means that start-ups need little more than $50k capital.
"This is the democracy of the internet. In the same way that user-generated content enables anyone to have voice, we have the same for entrepreneurs. If you have a product consumers want to sue, there are far fewer barriers than there used to be."
"Mobile aside, the barriers to starting a business are not there and that means opportunities for innovation.
Wolf said that the question of investing in a company with a big audience but no proven revenue model is out of date by three or four years. That was a question asked of News Corp about its MySpace purchase and, more recently, of Google's YouTube acquisition.
"It has been proven that there is a very robust business model in advertising. The business model depends on a great product that users want and if that audience will be there frequently enough. Keep working on user numbers and the ad revenues will eventually catch up."
Audience first, monetise later
Ben Holmes from investment firm Index said his company is particularly interested in investing in businesses around user-generated content, citizen journalism and online communications. Disguised as binky2128, Holmes can be found investigating many of these smaller services online and in character because, he said, social networks are fascinating.
"Business people spend their time talking about customer acquisition costs but we want to hear magical new ways to attract and serve customers and satisfy their attention at zero cost. And then figure out the business later on."
Behemoth Google
Anil Hansjee, European head of corporate development at Google, said everyone looks at the company as a "behemoth of revenue" and that inside the company there are still many areas they want to explore but haven't touched on.
Rather than thinking Google could "dominate the world", Hansjee said that in the last year the company has realised that partnerships are particularly important. Addressing the opportunity for services on mobile by partnering with telcos are part of that, but this reflects the company's wider strategy.
"We're less focused on owning content and channels, and more interested in partnering with those companies," he said.
"We want to open doors and change the perception of Google as one behemoth company."
In terms of Google acquiring smaller companies, Hansjee said that smaller companies can achieve their goals faster by leveraging Google's resources and infrastructure. Google benefits because it needs to partner or bring in new innovative companies to help it deliver its goals, he said.
Mobile potential
On mobile, Holmes said the barriers to innovation and take-up of services in the industry are starting to fall. Flat-rate monthly broadband will be key to that.
"It was broadband that really opened the web up for business and flat data will do same for mobile," he said. "Many mobile investment opportunities that we see are people trying to sell software platforms in to operators to help sell data services, but we want to see more mobile businesses with the ambition to attract and own customers."
Wolf said mobile is hugely significant as a growth area because of the potential in developing countries where phone users do not have PCs. "If we fast forward five years, more people worldwide will be accessing Yahoo through their phone than through their PC. Half a billion people use Yahoo on a regular basis, but there are two billion people with phones that aren't accessing the internet - and these are the devices that they have with them all the time."
Which acquisitions did you miss?
Chair Per Roman, founder of GP Bullhound venture capital, asked the panelists which big deals they missed.
Hansjee: "We could have done deals earlier so we didn't have to pay as much. We would have loved to identify YouTube and MySpace earlier in their cycle - that was the biggest dollar impact of us missing things.
But, said Roman, YouTube's success had much to do with its independence. Hansjee answered that Google's own video service was its fastest growing property, but YouTube grew even faster.
"YouTube grasped the community aspects that Google evidently didn't do to same extent," said Hansjee. "We're talking about being able to analyse the growths of social nets, identify what makes a trigger point in the cycle and make decisions at those points."
Yahoo should've bought eBay and Google, said Wolf, wryly. But seriously: "Clearly, almost any business that is successful is probably a business we looked at earlier. The challenge is to find those that will last. Yahoo, eBay and Google are all looking at a continued and very high level of innovation in this environment."
He said that all three companies are well capitalised and aware of the level of innovation they need to maintain and will pay a price that reflects that.
