Kvamme sees a rosy future for ecommerce and user-generated content.
Some of Kvamme's most enthusiastic predictions related to ecommerce and user-generated content.
In ecommerce, today the U.S. sees only two percent of retail taking place online, but in Korea it's 30 percent. One reason for this difference is that the speed of broadband connectivity in Korea is significantly faster than in the U.S., and with much faster bandwidth, "you can create an immersive experience that you can't create here in the U.S. today."
"Now imagine," Kvamme said, "if the U.S. had just 20 percent of retail online, we'd have $1.2 trillion in ecommerce revenue in a year. There's a big opportunity in new technologies to get to these consumers."
Kvamme identified two fuels for media: users and advertising. In the first wave of the internet, when he was the CEO of ad agency CKS Group, Kvamme found that the cost of creating interactive content was extraordinarily expensive compared to traditional media. Old media was linear, but in an interactive world, "you need to create 10 times more content." With the explosive growth in user-generated content, it is "giving us the ability to have a ton of content out there to advertise on."
Kvamme's most optimistic prediction is that the common guess that online revenues will reach 18 billion dollars by 2008 is a gross underestimate: he thinks that it will reach between 30 and 35 billion dollars, and key to his guess is a belief that ecommerce will grow to between eight and 10 percent of all retail, up from two percent.
Kvamme's investment strategy
Kvamme wound up his keynote by describing his investment strategy, first outlining his three laws of investing.
Law One: the company must present a clear and focused customer benefit.
Law Two: Sequoia will only invest after an initial site launch and user feedback.
Law Three: Sequoia will only invest after a site is discovered by the user community, because "great internet sites are not promoted; they are discovered." Kvamme's examples of this third law include eBay, Yahoo, Google and YouTube.
What makes a great internet investment for Kvamme?
The media model must include a viral component or very low cost of customer acquisition. The site must generate several page views per visit, and the average customer must come back on a regular basis. "The average customer will only go to seven sites on a regular basis," Kvamme said. So the test for a new internet investment is whether or not the site can be "one of the seven."
Recently, Kvamme said, Sequoia invested in a site (he declined to name it), "where the average user spends an hour and a half on the site. I love that. In part because it gives advertisers a lot of time to get in front of those consumers. With a billion people online, such sites need to have a coherent strategy for segmenting out a couple million people."
Kvamme then went on to list his eight make-or-break criteria for a new investment: 1) there must be a large market opportunity; 2) the company must have good technology and service at the engineering level; 3) the company needs a simple, direct mission, and should 4) be missionary rather than mercenary; 5) the technology should act like a magnet for consumers and have 6) an insane customer focus; 7) the company should have high gross margins because "if you have high gross margins you can do a lot of things wrong and still survive," and 8) the company should have low-cost infrastructure and development efforts.
Kvamme's final prediction: "I believe the next 'Google' will be or has been created in 2006/7, but not from an area we will expect."
We are "entering the golden age of the internet," Kvamme concluded. "The next 10 years are going to be a very exciting time."
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