Web 2.0 - Prepare For Epic Fail?
‘Web 2.0′ is a made up name that means nothing. It’s a label that’s irrelevant to what’s being provided on the internet. And yet a term with no real definition is being used to fuel financial investment, provoke widescale press interest, and develop large user bases.
Take a look at these quotes and see how relevant you think they are.
…a vast number of companies all have the same business plan of monopolising their respective sectors through network effects, and it’s clear that even if the plan is sound, there can only be at most one network-effects winner in each sector, and therefore that most companies with this business plan will fail.
…an Internet company’s survival depends on expanding its customer base as rapidly as possible, even if it produces large annual losses.
Make a certain amount of sense, don’t they? Except those quotes are paraphrased from the Wikipedia entry on ‘dot-com bubble’. The only thing I’ve done is turn the wording into present tense rather than past.
An Investopedia article threw up a quote that’s even more pertinent.
…investors want big ideas more than a solid business plan. Buzzwords like networking, new paradigm, information technologies, internet, consumer-driven navigation, tailored web experience, and many more examples of empty double-speak filled the media and investors with a rabid hunger for more.
I hear the same buzzwords today. In fact some of them are mentioned as reasons why Web 2.0 will succeed where the first dot-com boom failed! Terms like “consumer-driven navigation” and “tailored web experience” are often cited as an advantage of social networking services, and a boon for advertisers.
We’ve seen major investment in social networking groups like Facebook and Myspace. Rising venture capital investment in internet companies in general. For a while there was more wariness about the long term success, a hangover from the late 90s boom and bust. That wariness seems to be disappearing …people are getting caught up in the excitement of a bubble again. We’re seeing the same media excitement that often accompanies a boom.
Yet I still don’t see a way for many of these social networking services, the bastion of new investment and the ‘Web 2.0′ model, to effectively monetise. Even with the gathering of personal data from users to allow focused advertising …yet people still ignore it. Compared to traditional models and mediums, online advertising fails.
But there’s no practical way for most of these sites and services to charge. They’ve created an expectation that they will be provided for free. The quickest way to kill their user base will be to charge, with the exception of some niche sites that offer a genuine service that isn’t available elsewhere. That’s a tiny minority.
So how are these multitude of companies and services going to turn a profit when the venture capital finance runs out? Which ones are going to survive a bust? Is a bust inevitable again, or am I missing something?
June 12th, 2008 at 2:08 pm
There is always a way for fund raising, especially for a GOOD website :)
Don’t know how to get money off a good site? … give it to me :D
acakaduts last blog post..Summer Vacation & Education
June 12th, 2008 at 3:49 pm
I think it depends on if America tips into a consumer-led recession (some say we’re already there) and how long it lasts.
Webomaticas last blog post..FriendFeed Fever Inspires Me To Use It For Movie Recommendations
June 12th, 2008 at 4:30 pm
A bust of some kind is likely inevitable through normal competition and attrition. However, it’s worth noting that very few of the Web 2.0 services appear to have any funding outside of venture capital, so there won’t be a huge impact on the stock markets if they do go bust. And, unless I’m mistaken, they don’t employ a huge number of people, either.
However, I am skeptical about their chances for success for the same reasons you are. For most, their best hope is to get acquired by someone bigger and stronger.
Mark Dykemans last blog post..Social media makes distance irrelevant
June 12th, 2008 at 11:18 pm
I agree that any crash will likely have less of a public forum. The same kind of IPO madness isn’t there. That being said, it may not be stocks but whether it’s Newscorp buying MySpace or venture capital investments in upcoming social networking services, the market seems overvalued.
Robin Cannons last blog post..Web 2.0 - Prepare For Epic Fail?
June 12th, 2008 at 11:21 pm
I tend to agree Robin. None of the ‘web 2.0′ success stories have established an effective revenue model - Facebook, YouTube, Twitter etc.
Advertising won’t work because people aren’t in ’search & gather’ mode as they are in search engines. Facebook has proven that. And I am highly skeptical of the number of people who value the service enough to pay for it if a subscription model is introduced.
So where does the cash come from in the long run…? Google can’t buy every start up.
James Duthies last blog post..Has Lyndon taken linkbait offline
June 12th, 2008 at 11:41 pm
@Webomatica - I think that’s definitely going to be a factor. There was a good post in the Houston Startup blog about the importance of a strong economy in general.
@James - I definitely think the paid service is a no go for pretty much every service. Unless they can offer genuine value above and beyond anyone else - and this is where Facebook and the ilk offer the least value because they’re in many ways just “fluff” for entertainment - nobody is going to pay.
And even if they did have value enough to attempt a paid service, competition is such that you can easily see someone coming up with a free alternative pretty quickly.
It’s noticeable that the most effective survivors of the dot-com boom are the likes of ebay and Amazon. Basically sites that sell something (or take a percentage of things being sold by users). There’s nothing really in “Web 2.0″ that offers that same kind of model.