Tuesday, February 6, 2007

Is Web 2.0 a no-go?

posted by Andy Leff
Is Web 2.0 getting out of hand? The answer: A definite maybe.

Look at this list of Web 2.0 companies. Many have received mainstream press coverage by piggybacking their business plans off of MySpace. Or, they offer a service so entrenched in a niche market that there is no significant potential for sustainable, profitable business plans.

Take Slide.com. They have received millions in start-up funding. But all they do is make a slide show of pictures that you can post to your social network account after adding some Flash-based text. Why does a company whose main product is a glorified widget need millions of dollars??? (Whatever pixie dust they sprinkled in their business plan ... I want it.)

I'm not alone in my incredulity. Companies like Slide.com are the reason why many bloggers and analysts believe there is a new Internet bubble growing -- a dot-com redux.

There's one key difference between the two bubbles, though. In the Internet's early days, dot-coms were going public with no substantial revenue base. The hype would build for these companies (classic example: Wine.com), and many speculators would invest, thinking, 'Everybody else is doing it -- why shouldn't I get rich too?'

As a result, much of the general public was invested in these companies, which then crashed. All hell broke loose. People lost their shirts. Women wept. You get the idea.

I doubt that will happen in this Web bubble. There aren't really any huge IPOs happening. Plus, the major business strategy appears to be 'let's sell our application to Google'. (Brilliant! Never been done!)

Let's take another look at the list. Many companies on here do have interesting ideas, and are using new community-based functions to their advantage. MySpace, YouTube, Craigslist, Facebook, Webshots, and Flickr are obvious stand-outs, with plenty of room for future monetization.

These companies also prove there is room for multiple community-based applications in the market, each generating revenues while offering most of their services for free. And with the growing double-digit rates in advertising spending, these sites will grow right alongside.

But what happens if the advertising market finds the hot new thing next week, and pulls ad dollars out of these communities? Web 2.0 will be SOL. Better to set new strategies today, than panhandle tomorrow.

This fancy logo chart screams one thing above all: Barriers to entry for a Web-related business have drastically dropped since the early days of the Internet. Anybody with a good idea -- or even a bad idea -- can go out, spend a thousand bucks, and put their site out there to see if it sticks. The problem is, they don't ask the most important question: How will it make money?

So, is the Web 2.0 market over-saturated? Maybe. The mere existence of a Web 2.0 site like Go2Web20.net -- one that makes money by compiling other Web 2.0 sites -- gives me pause. Stay tuned over the next few months: I guarantee you'll see more of these companies closing their doors, because they'll finally realize a good idea isn't enough to keep the lights on.

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