Cascadia Capital Internet Report Touts Future of Social Media, Mobile, and Online Marketing

Seattle-based investment bank Cascadia Capital released a comprehensive report today on the state of the Internet and new media market and its future prospects. The analysis points to social media and mobile applications as areas in which companies are most likely to make money in the next couple of years. It also fleshes out the expected growth trajectory of online marketing and advertising, given the current state of the economy.

Cascadia managing director Warren Gouk leads the company’s Internet New Media practice, and put together the report with his team. Among other duties, Gouk advises regional and national firms on their merger and acquisitions strategy, and generally has his finger on the pulse of where Internet “commerce and community dynamics are converging,” he says.

One of Gouk’s major focus areas these days is online marketing. “I’m still incredibly bullish on the category, I think there’s a huge opportunity,” he told me recently. “We’ll take a few steps backwards before we can push forward.”

Here are a few excerpts from a Cascadia Q&A with Gouk, in which he talks about how social media, mobile, and online marketing are all entwined, and points to several Northwest startups as leading lights:

—On which Internet firms to watch: “We believe companies that are harnessing cloud computing are the emerging leaders in Web 2.5. These companies include various players in the mashup, widget and social networking space. Some of the companies worth noting include: social networking firms like Facebook, Twitter, Wetpaint and Hulu; search entities like Kosmix and Mahalo; data aggregation players like AboutUs and Rearden Commerce; and mobile companies like Admob, Amobee and bluepulse.”

—On the state of Web mergers and acquisitions: “M&A transaction activity is down across all sectors and the Internet market hasn’t been immune to the M&A downturn. However, there are pockets in the Internet that have been less affected: online services with strong brand and critical mass, for example, and online marketing plays that have aggregated unique distribution or possess unique technology/data to drive increased [return on investment] across ad networks. Expect to see record levels of corporate divestitures in the consumer Internet space, similar to eBay’s recent divestiture of StumbleUpon and its plans to divest Skype.”

—On what will drive the growth of online marketing: “There are several factors. (1) Continued advancements in technologies that create better experiences for the consumer/audiences and better conversion rates for the advertiser. (2) Top advertisers entering the realm of online marketing in a mainstream way, not just a trial phase. (3) Next-generation search technologies that take traditional search to the next level in offering more targeted content, information and services. (4) Advancements in social marketing. (5) Further convergence and co-habituating models with online and offline marketing businesses, e.g., BuddyTV.”

—On the role of mobile devices in all this: “It is clear that the mobile market opportunity can be described in terms of a pre- and post-iPhone world. The iPhone has significantly jump-started the demand for wireless broadband services, and has experienced over 1 billion application downloads since launching nine months ago. Many mobile companies have aligned their strategies to serve content and advertising in the form of applications over the iPhone ecosystem and other device platforms like BlackBerry, Google and Palm. The mobile device is likely to offer a more effective medium for advertisers to engage with consumers for a variety of reasons, including the one-to-one user/device connection, as well as additional targeting information, such as user location. Although mobile advertising is opening the door for a new and burgeoning branding market opportunity, more effective advertising models will need to be developed before the mobile medium is fully embraced.”

—On the ultimate future of online marketing: “Historically, online marketing and advertising have been predominantly focused on direct marketing and direct response techniques, e.g. lead and action-based through search inquiries. Up until now, big brand advertisers have been hesitant to shift budgets to online mediums. We believe that as online video content and mobile content distribution reach mainstream markets, brand advertisers will begin allocating a meaningful portion of their ad budgets online.”

“We also see a concerted effort to create a more engaging environment where the relationship between the consumer/audiences and the advertiser/marketer is stronger. Rich media, mobile and interactive video based advertising will do a far better job allowing audiences to engage with the brand vs. pushing undesirable ads in an obstructive manner. Another technology making great strides to improve the relationship with audiences is personalization and targeting techniques that constitute good marketing practices (in accordance with TRUSTe policies)—this technology pushes the right kinds of ads to the consumer. The lines between advertising and entertainment will blend more closely together—for example, in-game advertising, in-video advertising and hyper-text commerce targeting, where a user scrolls over a picture or video to get information on where to buy certain products.”

“It took the newspaper industry 127 years to reach the $20 billion mark in advertising revenue. For radio, it took 75 years; cable television, 25 years. Online marketing has reached the $20 billion mark in 13 years—an impressive feat for a relatively immature industry.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and Editor of Xconomy Boston. E-mail him at gthuang [at] Follow @gthuang

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