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Summary

  • E-mail usage is likely to drop as spam reduction technologies at the back-end of e-mail clients clean up the world wide web.
  • With a safer online environment, internet usage will continue to trend higher. This should in turn result in more transactional volume over the web.
  • Declining sources of "cheap advertising" will make legitimate ad-exchanges/ad-platforms more valuable and will eventually result in higher pricing on ads.

E-mail usage is projected to drop. The industry wide effect of declining e-mail usage will impact technology juggernauts like Yahoo! (NASDAQ:YHOO), American Online (NYSE:AOL), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOG) (NASDAQ:GOOGL).

With declining spam, and improving data security measures, the web as a whole will become a safer environment to advertise upon. Furthermore, improving usage statistics indicate that ads are priced a little low when compared to other advertising mediums like print, and television.

Given positive industry-specific trends, cost-per-click/impression ads should trend higher, benefiting the major ad-exchange like Yahoo! Bing Network, Google Ads, and Facebook ads. Furthermore, smaller ad-exchanges belonging to companies like AOL, may price ads higher assuming consumers continue to migrate to non-television based media.

Consumers will use e-mail less, whereas businesses will use it more

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Source: Statista

As indicated above, e-mail for business is projected to grow from 100.5 billion per day, to 132.1 billion per day between 2013 and 2017. However, what makes this figure standout is that the number of business e-mails per day will grow at a 5.1% growth rate. On the other hand, the number of internet users globally is expected to grow at a 6.72% growth rate according to Cisco:

By 2017, there will be about 3.6 billion Internet users-more than 48% of the world's projected population (7.6 billion). In 2012, there were 2.3 billion Internet users-about 32% of the world's population (7.2 billion).

One would think that the internet will become a noisier place with more companies sending out more e-mails, and consumers actively engaging with one another via their e-mail addresses. While, e-mail isn't expected to completely die, it seems that alternative ways to interact with one another have emerged, such as messenger applications, along with social networks. This could be one reason for declining e-mail usage statistics.

However after doing research, I think the primary reason for falling e-mail usage is a reduction in spam.

Source: Microsoft

According to Microsoft:

The dramatic decline in spam observed since 2010 has occurred in the wake of successful takedowns of a number of large spam-sending botnets, notably Cutwail (August 2010) and Rustock (March 2011). In 2H13, Exchange Online Protection determined that about 1 in 4 email messages did not require blocking or filtering, compared to just 1 in 33 messages in 2010.

Furthermore, it seems e-mail clients like Gmail, Yahoo!, AOL, and Hotmail have become more robust at filtering and rejecting spam messages. If spammers can't spam, they won't even bother to try. This factor alone will severely reduce the number of e-mails sent globally per day.

A two-step system for the filtration of e-mail has been developed by Microsoft. The first stage is network edge, which decides whether or not to block content based on the reputation of the website, along with other non-content rules. If, the message isn't blocked at the first stage, the second stage uses content rules, which will detect whether the word usage involves threats, malware, or other conditions that indicate that the message is low in quality of content.

This dramatic reduction in spam will reduce network security threats, thus creating a safer environment for people to interact, share content, and sell products online.

This is good, because improving internet security at the back-end is what will improve the transaction volume from web-based consumers. Furthermore, phishing attempts whereby e-mails re-direct a person to a website that contains malware will decline. A safer web will equate into more revenue for every business tied to the web.

Mobile advertising will improve as cheap marketing dies

Because cheap sources of advertising, where people or companies would buy databases full of e-mails are being mitigated to be extremely ineffective. The remaining legitimate advertising options like display, search, and newsfeed ads will be worth marginally more, and are protected by an environment where only legitimate advertising exchanges, or mailing lists are used for corporate communication to end-users.

This has really great implications for investors who want to own web-based properties. Marketers are saddled with fewer and fewer options to advertise, nonetheless the reach of the World Wide Web continues to increase, and the daily engagement levels have continued to trend higher.

Source: eMarketer

With the average person interacting with a web capable device more than their TV, a massive shift in ad-dollars is well on its way. At the present moment, the average person consumes digital content 5 hours and 16 minutes per day, advertisers will need to go where the eyeballs are, eventually.

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Source: Social Media Today

Facebook (NASDAQ:FB) has reduced the effectiveness of advertising on your timeline. So if you happen to own a Facebook page, please understand that it's not your marketing that sucks, but rather it's Facebook's algorithm significantly reducing your contents timeline views. Instead, you have to buy ads that will display globally on different users newsfeeds. Yep, Facebook is starting to demand residual business from you, and you can't do anything about it.

Deferring to basic supply and demand economics, cheap advertising methods are becoming less and less common. Websites with high reputational ratings and high levels of reach will eventually charge more for all forms of advertising. Furthermore, expensive TV ads will become less competitive, as ad platforms become more efficient at integrating video.

Furthermore, advertising to mobile devices is expected to accelerate. At least according to Gartner:

Global mobile advertising spending is forecast to reach $18.0 billion in 2014, up from the estimated $13.1 billion in 2013, according to Gartner, Inc. The market is expected to grow to $41.9 billion by 2017.

I think the estimate is a little conservative. But overall, I won't disagree, mobile advertising growth is set to boom, and the destruction of spam, and a safer world wide web, will help to accommodate for this shift to mobile consumption.

Conclusion

Low-quality advertising is out the door, and it's likely that in the future, ad-friendly environments will cost significantly more to advertise upon. Furthermore, the changing attitude that consumers have towards the internet, and the amount of time spent in front of web-capable devices indicates that ads are heavily underpriced relative to where they should be.

Furthermore, I believe that if the web becomes a safer place, the conversion of internet impressions into actual sales will improve. Therefore, the overall improvement in data security trends is net positive for all companies that are web-based.

Among web-based companies my personal favorites are Google, and Facebook. While Microsoft is another compelling investment opportunity, the company is heavily diversified and isn't a direct way to invest into rising ad-prices. Yahoo! makes for another compelling investment case, as I expect display-based ads to eventually stabilize. AOL is the smallest out of the group, and tends to advertise within its e-mail client. Assuming better spam prevention technologies are implemented, AOL may be able to turn its e-mail client into an ad-friendly environment.

Overall, Yahoo!, Gmail, Hotmail, and AOL will be better monetized in the future, and assuming message filtration continues to improve, people may actually check their e-mail inbox more. A better user experience on e-mail clients will in turn drive display ad growth within those e-mail clients. Plus, if people knew the ad was safe, they might actually click on it.

Source: Internet Is Becoming Safer, Usage Statistics Are Up, Now Is The Time To Capitalize