NEWS: The Next Web Battleground: Turning Data Into Dollars

The Next Web Battleground: Turning Data Into Dollars

from Silicon Alley Insider by Ed Sim

A common theme from two meetings I had the other day: The next generation of the Web will be built on data mining -- extracting intelligence from the reams of data web services collect on a daily basis.

I've been thinking about this for at least a couple of years:

I truly believe the next battleground will be based on scaling the back end, and more importantly, mining all of that clickstream data to offer a better service to users. Those that can do it cheaply and effectively will win. The tools are getting more sophisticated, the data sizes are growing exponentially, and companies don't want to break the bank nor wait for Godot to deliver results.

My first chat was with a well-known research analyst who covers Internet stocks. We talked about the usual topics: How the Internet was taking share from traditional advertising budgets, how the top brand advertisers have not really embraced the web yet, etc. But our most lively discussion revolved around next generation advertising technology, which all revolved around increasingly complex forms of data analysis.

To that end, I mentioned one of the fund's portfolio companies, Peer39, which is using natural language processing and machine learning to create highly precise matching of commercial offers and user generated content. As you might guess, the secret sauce are the algorithms that the company has created.

Later in the day, I had lunch with a friend we funded years ago. What was interesting to hear was how many of the future product lines we discussed in the past were finally starting to emerge as real revenue drivers for the business today. Years ago the company's first data center cost around $20 million; the latest one, which has orders of magnitude more customers, cost only $3 million.

A few years ago data-driven opportunities were cost prohibitive -- and too early for the customer to understand. That was because many businesses were just worried about not getting Amazoned. Today they are all on the Web, thinking about how to drive better results. Which is why we ended up talking about a massive data warehousing project his company was working on, which will take all of that data across his huge customer base, and help them better monetize their sites.

What I love about these kinds of opportunities: Algorithms scale, have high gross margins, and are proprietary and defensible. The next generation Web is not about what you click and see -- it's about what's happens behind the scenes when you click.

Ed Sim is a founder and managing director at NY-based Dawntreader Ventures.You can read the original version of this post at Ed's blog BeyondVC.

Ed: The trick is the learning machine.