Internet Subscription Services / Growing Opportunities in the Recession

I recently attended the very informative and expansive McGraw Hill Media Conference and there was a lot of discussion about the challenges facing the advertising market (both traditional and digital). Certainly there is a secular shift afoot from traditional to digital media and the time spent on digital media relative to the ad dollars flowing there are mismatched. There are many reasons for this that I won’t delve into and I firmly believe the secular shift will continue growing digital media into a much larger industry than it is today. However, one area that I continue to be intrigued by is the subscription model where the consumer pays for the value they derive from spending time with a digital media solution (rather than paying for it by watching ads).

Consumer facing Internet models that utilize a subscription model can offer scalable, high growth, billion dollar + business opportunities. If these models are properly targeted, are able to achieve sufficient “market liquidity” and answer a real need for the consumer, they can also grow and flourish in the face of an economic and advertising downturn.

Following this line of thinking, we recently lead the Series A venture round for Sittercity, the leading Internet provider of In-Home Care for families in the US. Their service allows employers (the parents) and the job seeker (babysitters, elder care providers, pet sitters, housekeepers, tutors, etc.) to connect online. Leading up to this investment, I spent a lot of time thinking about how online subscription services have evolved over the past decade. My take away is that there are some clear components that make models successful and that there is still a large amount of opportunity to build new entrepreneurial endeavors.

There have been four waves of innovation over the past 10 – 12 years that I find very interesting in characterizing broad, billion dollar + shifts in consumer behavior from offline to online. While there are certainly other multi-billion dollar business models on the Internet that are non-advertising, the following four are areas that are of specific interest to me:

– Traditional Corporate Recruiting
– Dating
– Home Improvement
– In-Home Care

Many of the leaders in these areas were originally entrepreneurial efforts before they were acquired by larger companies. These Internet services provide both parties with a highly valuable offering for activities that were historically undertaken through less efficient means (ie: classified publishing of jobs, meeting dates in bars, going to the yellow pages to find a plumber, asking your neighbor who they use as a babysitter). They have very attractive business models in that they can aggregate the demand side and the supply side through a variety of cost efficient online and offline channels and then collect revenues, generally paid for by credit card, on the web. The offerings usually provide both parties with features and functionality that are far superior to the traditional means such as multi-faceted search, in depth and multi-media profiling, reviews and privacy. Further, the supply side and demand side face chronic needs for these subscription services and therefore even when subscribers churn they often return at a later date.

Traditional Corporate Recruiting – Wave 1

The first generation companies included Monster.com, Hotjobs.com, Career Builder, etc. These models generally relied on corporate customers as the paying subscribers and took the resume submission process to a much more efficient level. This model has continued to evolve with the rise of highly targeted companies such as The Ladders and SixFigureJobs.com. This area is probably the most mature segment but LinkedIn has innovated in this area once again allowing major recruiters the ability to search and communicate to LinkedIn’s massive database of highly qualified and targetable members. This market represents billions of dollars in revenue per annum to the various service providers mentioned above while only a decade earlier this industry was virtually non-existent on the web.

Dating – Wave 2

The first generation of companies included: Match.com, uDate, eHarmony, etc. This is possibly one of the most powerful economic models because everybody pays. This segment also achieved in excess of a billion dollars in revenue and millions of subscribers in the US in only 10 years.

Home Improvement – Wave 3

The emerging companies in this field include: Angie’s List and ServiceMagic.com. This model is very interesting in that it is possible to generate revenues from the home owner while also implementing a lead generation model and generating revenues from home contractors. This segment generates hundreds of millions of dollars in revenues. There are millions of consumers in the US using these services today.

In-Home Family Care – Wave 4

The most nascent category that I am intrigued by is the In-Home Care segment (babysitters, elder care provider, pet sitter, housekeeper, tutor, etc.). Emerging companies in this field include: Sittercity, Care.com, ElderCareLink and Sitters.com. This segment generates tens of millions of dollars in revenues and is growing at a rate in excess of 100% per annum. There are hundreds of thousands of consumers in the US using these services today and it is conceivable that this will grow to a multi-hundred million dollar industry with hundreds of thousands of subscribers in the next five years and very possibly into the billions of dollars in the next decade.

What’s Next?

I am not sure exactly where the next wave will come from but there are numerous services that consumers utilize in the offline world that you could imagine moving online. The good news is that I believe there are many great entrepreneurs working on exciting new models and I am looking forward to learning from them about the next exciting opportunity.

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