Billions of dollars have been spent building the Internet's infrastructure. The next battle will be over content. And the businesses that will grow out of this race are just beginning to emerge.
Early content startups, from Salon.com (SALN) to TheStreet.com (TSCM), have fallen on hard times as they struggle to win respect for their business models. The new group of content providers are a different breed. These Internet startups are engaged in a land grab to own the business of organizing data on the network.
Consider Epinions.com, which seeks to be a leader in consumer reviews; or eCustomers.com, which wants to own consumer purchasing preferences, aggregating content and distributing it across the Web. Just as Inktomi (INKT) provides search applications to third-party sites, these companies want to become the content service providers of the network. If they're successful, the data from CSPs would dominate the Internet.
While many offline companies aggregate and distribute content in specific categories, online businesses that own these engines of aggregation and distribution present a far more interesting value proposition. Consider Zagat's, one of the best-known offline restaurant review brands. Each year, it randomly surveys restaurant patrons and synthesizes the data to establish ratings and reviews. Compare the value of this content with the real-time feedback generated from a much larger and more-timely customer base a company like Epinions has.
Just as eBay (EBAY) has become the dominant marketplace for auctions by virtue of the size of its community, CSPs can dominate their respective markets if they achieve critical mass by leveraging a community of content contributors.
As application service providers become more prevalent, it's possible to envision a day when CSPs will dominate the provisioning of business data across the enterprise. Market research, customer databases and manufacturers' catalogs are obvious examples. A number of b-to-b exchanges have begun to see the power of the network effect and the importance of providing market data as a service.
This is the opportunity for CSPs. Their mission is to become so powerful in a given content category that consumers and businesses look to their data when making commerce decisions. Imagine if eCustomers owned the engine that provides retailers with a list of everyone who bought a fly-fishing rod and sports utility vehicle in the last 30 days. This kind of data goes beyond the ZIP code, tax bracket and marital status of today's offline consumer-preference data aggregators. These kind of content networks, possible only through a web of multiple contributors, will empower CSPs with critical business data that will yield incredible dividends for their owners.
CSPs that effectively build out networks of content infrastructure will dominate in the online world. The power of their networks, increasing each time additional distribution partners join their webs, will enjoy increasing returns that their competitors won't be able to match.
As dominant CSPs emerge, a new class of data-mining services will also arise that leverage these interconnected CSPs, offering us new levels of visibility into commerce and consumer behavior. Over time, these content infrastructure players will become as fundamental as the routers and pipes that make up the physical network.
Adam Dell is the managing general partner of Impact Venture Partners and an adjunct professor at Columbia University Business School. Impact has investments in CSPs such as NotHarvard.com and PartMiner.com.
