Internet investing: A new world of fragmentation and transparency

Summary: the emerging trends discussed in the last piece in this series suggest that the Web will become more fragmented and more transparent. That has four significant implications for Internet companies and their stocks.

Here’s a quick recap of the trends, and then the analyis of their implications for Internet investors:

The four trends discussed in Four emerging Internet trends for investors were:

  • Web advertising becomes really useful
  • Web sites become even easier and cheaper to build
  • Syndication and filtering dramatically improve web publishing and information dissemination
  • Search will continue to improve and grow in significance

Now, note something interesting.  All four are related to each other:

  1. Easier and cheaper web publishing makes it possible for individuals and small companies to establish niche web sites. 
  2. Contextually relevant advertising makes it possible for small Web publishers to support their sites with advertising relevant to their specific niche.
  3. Improved search then makes it easier for web users to discover those narrowly-targeted sites. 
  4. RSS and mark-up languages then make it easier for people to become repeat users of those sites.

In other words: the four trends together fuel the rise of the small, narrowly-focused Web site.  Small Web sites have suddenly become easy to build, easy to fund, easy to find, and easy to re-visit.

Until recently, market dynamics on the Web were determined by economies of scale due to brand and networking effects.  Think of the major Web business segments: almost all of them have shaken-out into one or two leading companies.  The top one or two Web companies took the majority of traffic, and the rest shared the “thin tails