Web 2.0: Easy Come, Easy Go

The surprising news about SearchFox's demise got me thinking about the Web 2.0 “cycle”. Among the key things that has spawned the proliferation of Web 2.0 applications/services is the low cost of development and distribution. It is possible to launch a new, cool service with an investment of less than $1-million using some hot-shot programmers and the viral marketing on the Web. This has made it easy for many entrepreneurs to jump into the game because the barriers to entry are low. The downside is competition is fierce in many markets. At the same time, far too many Web 2.0 launch their business plans with half-baked or no business plans – which gives them little staying power if competition intensifies unless they are lucky enough to be acquired by Google, Yahoo or Microsoft (this is not a business plan, folks!). The RSS editing and reader is a perfect example of the “easy come, easy go” Web 2.0 environment. There are probably hundreds of editors and readers in the market, and more (such as David Winer's RSS aggregator) on the way. For the most part, I don't see much of a business model for editors or readers. How many of them actually charge a monthly subscription fee or user licenses? And competition is so strong, it is difficult – at least for the time being – to operate with healthy margins, let alone raise prices. This is why you will see a flurry of “sorry, we're going out of business” announcements from hundreds of Web 2.0 companies in 2006. Many of them will fail to raise more venture capital and/or will be unsuccessful in attracting a takeover offer and/or will not have a good enough business or business plan to get enough users to pay for their service/application. SearchFox, I'm afraid, is just going to be the tip of the iceberg so enjoy many of these Web 2.0 services while you can.
Update: Some other Web 2.0 categories I just don't understand from a business/investment perspective are calendars and to-do lists such as Rememberthemilk, 30 Boxes, Trumba, Zimbra and Airset. They are definitely cool but how do they intend on making enough money to create a viable business?
More…Strategic Board has a good summary on why VCs are conflicted about Web 2.0 start-ups, while Dion Hincliffe looks why Web 3.0 will need to include revenue sources – be they advertising, subscriptions or transaction commissions.
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  • Ken Yarmosh

    Excellent point…I articulated the same thing yesterday. There is no business model w/rss readers – not yet, at least. Although, I'd be willing to pay a nominal fee for one that actually did everything I wanted – but I'm sure I'm in the minority there.

  • Stuart MacDonald

    Well said, Mark. It's not like anybody wants to be a spoilsport, but here's the thing: for a BUSINESS to exist, it has to be profitable, sustainable and matter to customers. Virtually none of these breathlessly-described Web 2.0 mashup yada yada thingies are profitable (and only the very squinty eyed could see how they might me), by their very nature of relying on others for content or “services” their sustainability is in question, not to mention that if Person A can do it cheap, then so can Person B-through-infinity. And as far as “matters to customers go,” my sense with a lot of these things is that the only Customer in mind is some prospective purchaser of the venture. Making real customer's lives better often doesn't appear to make the cut as an objective.
    True value comes from true innovation, not re-packaging other people's stuff. Deal with it.
    - Stuart

  • Larry Borsato

    I've learned to be careful in my prognostication. Ten years ago the internet was never going to be useful for business (from Bill Gates himself). Yahoo! was overvalued and there was no money in eyeballs.
    Five years ago there was no money in search and anyone can do it.
    Recently people said nobody would watch tv on their cell phones.
    Yet Google is now a huge company and so is Yahoo!.
    There used to be a number of word processors, and now there is Word. Does anyone even care about #2?
    There may be hundreds of tools now, and there will be consolidation, but a market will emerge.
    Right now I think we're seeing lots of product from people just because they're smart and they can do it. I'm firmly on that side of the fence. I want to build tools because I can. Who knows, maybe a business model will fall out of it.

  • Anonymous

    This is exactly why we decided we had to charge a subscription fee for FeedLounge. No one will be happy if the service can't sustain itself.

  • Patrick Hurley

    Absolutely agree Mark. While the AirSet web service is indeed free, we just rolled out our first BREW mobile client (with Verizon) which requires a $6.49 U.S. monthly fee. Java mobile
    clients for other carriers will follow very shortly.
    Our business model is predicated on the belief that a percentage of our users will want to manage their group calendars, contacts and lists from their mobile phone as well as the web and will pay for that convenience. The key, of course, is to get enough users to download the mobile client to essentially subsidize the free web service.
    As we build out the web service, there will also be opportunities for us to market a basic / premium tiering, with the latter requring a fee.