Every Internet giant, from to Google to Facebook, may have seemed to come out of nowhere to become a brand name, but they all tapped emerging consumer and business trends.
The new breed of Internet stars combine two separate trends—social networking and mobility.
“The platform shift from the nonsocial to the social is opening up a bunch of different opportunities to create new businesses on top of existing categories,” says Andrew Braccia, partner at venture capital firm Accel Partners. “With that shift comes the opportunity for people to build new products and services that take advantage of the unique characteristics of those platforms.”
Braccia notes that social networking and mobility have had a particularly strong impact on online retail, content and gaming.
The five companies featured here haven’t quite reached superstar status but given the attention they’ve received from consumers and venture capital firms alike, they’re on their way.
The biggest buzzword in social networking is "geolocation"—the ability to broadcast where you are and find out where your friends are.
The biggest name thus far is Foursquare, which turns location-sharing into a game that lets users compete for points. When users check into certain venues often enough from their mobile phones, they earn badges. Check in more than anyone else and you can become the “mayor” of a specific location, until someone else checks in more and claims the title.
Augie Ray, senior analyst at Forrester Research, says this type of real-time geographical information is valuable to marketers. Starbucks , for example, recently offered mayors of their stores a $1 discount on Frappuccinos.
“The geolocation tools are not merely saying where somebody is, they’re also allowing people to associate themselves with their activities and their favorite brands, so that also becomes very relevant information that marketers can use to target,” says Ray.
Last week the service registered its 2 millionth user—just three months after passing the 1- million user mark. In late June, the company raised $20 million through a later round, preferred stock sale, led by Union Square Ventures.
This Chicago-based company leverages the power of social media to offer local deals. Groupon offers a daily deal to customers in 150 cities worldwide, who have signed up to receive its email promotions.
One recent deal: a day-long digital photography class at the Chicago Photography Academy for $45, compared to the regular price of $125.
Groupon says it works on “collective buying power.” Basically, it promises local merchants a minimum number of customers, allowing it to offer discounts. Groupon takes 50 percent of every deal, plus a credit-card processing fee. Since launching in November 2008, the company has sold more than 7 million deals. On Wednesday, Twitter announced that it is working with Groupon on offers for its new “@earlybird” feed.
“The local merchant wins because they’re able to get exposure in a very cost-effective way,” Braccia says. “The consumer obviously wins with a great deal. And Groupon wins as the intermediary. There are very few businesses where everyone wins like that.”
Last December the company raised $30 million through a preferred stock deal. In April, the company nabbed $135 million in a financing round, led by Russian holding firm Digital Sky Technologies, to fuel its global expansion. The company expects to serve 300 markets by the end of the year.
Clothes, Games and Sports
This San Francisco-based women’s apparel retailer clearly believes in the wisdom of crowds, to the point that it wants the audience to “Be the Buyer.” Through this program, ModCloth encourages customers to vote for and comment on designs suggested by co-founder Susan Koger. Only items that receive enough votes will be produced.
Although ModCloth also sells clothing from independent designers, it was the social nature of its approach that drew the interest of Accel Partners, which led to the preferred stock deal in June that netted the company $19.8 million. ModCloth plans to use the funds to expand its social commerce platform.
“They’re using the social realm very aggressively to both curate and guide their production decisions, and getting people involved lowers the risk of producing things that people don’t really want,” Braccia says. “The company has been growing very aggressively over the last two to three years, which is always a great indicator of success.”
Similar companies to watch: Etsy, Threadless.
Sometimes it seems like everyone is in the apps business, but for Matt Murphy, partner at venture capital firm Kleiner Perkins Caufield & Byers, the ones to watch are those who are building brands, not just one-off products.
“In mobile, people don’t seem to be as sticky with their current set of applications,” Murphy says. “Once you’ve lost the user for your app, the only way to get another swing at the plate with them is to have another app to serve them.”
KPCB recently doubled its iFund investment initiative for makers of iPhone and iPad apps to $200 million. Among the beneficiaries is social gaming companyZynga, which publishes multiple titles for the iPhone and Facebook platforms, including “FarmVille” and “Mafia Wars.”
According to Nielsen NetRatings, Zynga was the sixth-fastest growing brand in June compared to the same period last year. The site drew 20.7 million unique users in the U.S. during the month, an increase of 55 percent. And games in general represent the most downloaded mobile apps, well ahead of music and social networking, according to a Nielsen report.
“Platforms like Facebook and mobile have been another avenue in which game developers have been able to reach consumers,” says Alex Burmaster, a Nielsen NetRatings spokesman. “Part of it is the viral nature of games, and mobile is an incredibly viral medium.”
The latest buzz surrounding Zynga is Google’s reported $100 million to $200 million investment to make the company the cornerstone of its Google Games service, which industry watchers believe will launch later this year.
Similar company to watch: ngmoco.
It’s not easy to make a name for yourself in a field dominated by global brands, but sports blog network SB Nation has done just that by taking a community approach.
What began as AthleticsNation.com, a blog created by Tyler Bleszinski to compensate for what he perceived as a lack of coverage of the Oakland A’s, SB Nation has grown to more than 250 team-oriented blogs. In April, the network drew 3.6 million unique visitors to its 21 most popular sites, according to comScore.
“Sports is a content type that’s inherently social and discussion driven,” Braccia says. “We look at this sports category from a bottom-up, grass roots perspective than top-down.”
The big boys have taken notice. SB Nation has entered into partnerships with Yahoo Sports and USAToday.com, and posts from its 29 hockey blogs now appear as linked headlines on the homepage of NHL.com.
Last summer, Comcast’s venture capital arm, Comcast Interactive Capital, led the second-round financing that delivered $7.95 million to SB Nation.
Similar company to watch: High Gear Media.