Summary:  OK, OK, for those of you who self-identify as members of the digerati, you can file this posting under “Restatement of the Self-Evident.”  However, the always-reliable Pew Internet & American Life Project just released its findings on how Americans get news. http://www.pewinternet.org/Reports/2010/Online-News.aspx.

Most interesting to us are the “social networks” results—meaning the number of people who receive or share news via social networks.  This was barely an “industry” just two years ago.  Equally interesting is the percent of people who access such news via their mobile phones.  And, of course, we were sort of surprised that TV stills ranks as the #1 source.

The Details.

Paraphrasing the results of the study:

  • News from the Internet: Roughly six in ten get their news from online and offline sources combined.
  • #3 with a Bullet: The internet now ranks third behind the TV (local then national) as a news source.
  • Social Networks as News Networks: Three quarters of those who get their news online receive it via email or social media posts and a little more than half forward (or otherwise share) the news in the same fashion.  Moreover, 37% of Internet users have “contributed” to the news—including posts, comments, etc.
  • Portable: 33% of cell phone owners now access news on their cell phones.
  • Personalized: 28% of internet users have customized their home page to include news from sources and on topics that particularly interest them.
  • Clutter Cutters—Brands Matter: Most online users rely on a handful of sources.

So What?

What these results tell us at Global Capital is that the Web now reaches many, many people through multiple platforms and not just through “traditional” news websites accessed by a PC.  That seems to be dropping in popularity in favor of mobile phones and through the user “generated” networks represented by Facebook, Twitter, MySpace, Xing, you name it.

Thus, news travels fast and, in particular, through a network that becomes sort of iteratively self-selecting.  In other words, someone hears about a news event across several platforms, depending upon where they are in their day (and in some cases through multiple platforms at the same time) and then sends it out in one or more of several ways:  to all their friends;  to those who follow them on Twitter;  and to those who are friends on sites such as Facebook.

The platform almost doesn’t matter;  it just matters that it provides them the news (either directly from specified sources or through their social network connections) and that it then lets them forward it and in more than one-third of the cases, comment on it, as well.  Can you say the “Internet?”

One thing seems certain:  Substantial evidence of progress to the goal of:

Any content, anytime, any platform and with any interaction.

Draw your own conclusions, especially the business implications.  They are substantial.

James C. Roberts III is the Managing Partner of Global Capital Law Group and CEO of the strategic consulting firm, Global Capital Strategic Group.  He heads the international, mergers & acquisitions and transactional practices and the industry practices concentrating on digital, media, mobile and cleantech technologies.  He is currently involved in opening the Milan office.  Mr. Roberts speaks English and French and, with any luck, Italian in the distant future.  He received his JD from the University of Chicago Law School, his MA from Stanford University and his BS from the University of California—Berkeley.

The Global Capital firms counsel domestic and international clients on strategic and legal issues inherent in the deployment of intellectual & financial capital—a merger or acquisition, foreign market expansion, a strategic alliance, a digital content license, a mobile deal, foreign and domestic labor and employment policies, starting a new entity or raising capital. Clients range from global Fortune 100 corporations such as Deutsche Bank and News Corporation and its subsidiaries, MySpace.com and Fox Interactive Media, to start-ups.  Industries represented include digital media, Internet, software, medical and biotechnology, nanotechnology, consulting firms, environmental technology, advertising, museums and other cultural institutions and manufacturing.

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Summary:  The New York Times today reported yet another investment in online games, this time with an interesting structural twist. http://www.nytimes.com/2009/12/16/technology/internet/16game.html. Digital Sky Technologies, from Russia, made yet another investment in the online world, after its $200 million investment earlier this year in Facebook.  They are leading a group that will invest $180 million in Zynga, purveyor of wildly popular Facebook games like Mafia Wars.  (Venture investors had already invested about $39 million in Zynga.)  This deal follows EA’s acquisition of Zynga’s competitor, Playfish, for $300 million.

Most interesting is the deal structure.  While it is similar to the deal cut with Facebook, it vastly differs from the usual venture investment.  DST bought common stock from employees and, in spite of the size of its investment, did not request a seat on the board.  In addition, we see the virtual micropayment model as something that could be applied in online “rental” of digital content—itself a potentially large market.  Once users get accustomed to paying for virtual tools, they may be willing to pay for digital content.

The Details.

Digital Sky Technologies, a Russian investment company known for its patience with its investments, has done it again.  After stunning the world with its investment in Facebook in the middle of 2009, DST has just announced that it will lead an investment team that will invest $180 million in Zynga, a recent startup that has seen explosive revenue growth from its online games such as Farmville and Mafia Wars.  Marc Andreesen’s fund, Andreesen Horowitz, and Tiger Global are part of that team.

The Deal Itself. What struck us was the deal structure.  Normally, venture investors receive preferred stock that comes with substantial controls on the future of the company.  DST plays by different rules.  They buy common and preferred stock.  Moreover, they are buying Zynga’s common stock from existing employees.  And, they have chosen not to take a seat on the board.

Such investors usually expect a return—either through an IPO or a sale of the company—in a relatively short period.  Evidently, DST differs;  they are said to be patient with their investments.  Given that DST does not have any limited partners with their own short-term needs for returns, it looks like a good move.

So What?

It looks like a prescient move by DST.  Zynga’s annual revenues were reported at $250 million, coming from the online game players purchasing virtual products with real money.  This model has been astoundingly successful elsewhere in the world, most notably China and other parts of Asia.  People playing these games seem willing to fork out a few bucks here and there to buy a virtual tractor or seeds for their online garden.  A few dollars here , a few dollars there and pretty soon you are talking real money.  $250 million and growing.

We also like Zynga’s space.  The model for these types of games has been around for a long time:  Think Sim City.  So also has the virtual economy, fueled by micropayments for virtual goods:  Think SecondLife.  The virtual micropayment model has proven to be a durable and sensible model in China for quite some time.

Sure, such games are subject to potentially fickle behavior of online users.  If Facebook loses its “cool” factor, the decline in online usage could hit Zynga.  No doubt user growth will taper off with Facebook (what is it now?  In excess of 360 million?) but it will take awhile for the user base to decline in any significant way.  Plus, those users might become accustomed to such micropayments, which behavior could then translate to increased revenue for digital content providers.  Hello, newspapers and magazines!

James C. Roberts III

http://www.globalcaplaw.com