In light of Newsweek's discovery of Web 2.0, I had an "enlightening" chat with one of Kijiji's Canadian managers yesterday. It went something like this:
Me: "So what's Kijiji's business model? How does it make money?"
Them: "We don't have a business model. Everything on the site is free."
Me: "Oh, then I guess Kijiji is a real Web 2.0 company."
For months, I've been ranting about how the lack of viable business models within all these cool Web 2.0 services/applications is a huge and troubling problem. How can you create a business if the service is given away free? – and I'm not talking about jumping on the AdSense bandwagon. If, like me, you have a thing about revenue and profits, the vast majority of Web 2.0 ventures make no sense other than being vanity/make-work projects or hobbies for smart developers.
   But maybe I'm taking a totally wrong approach. Maybe Web 2.0 isn't about creating businesses but, instead, a tool to show off the true power of the Web as a communication, collaboration, entertainment and e-commerce engine. Perhaps the Web is going through an important, but necessary, stage focused on showing how easy it is create new services and start new companies. This contrasts with the dot-com boom where it looked expensive to start and establish a company online. Perhaps what happens next is all the lessons from the dot-com boom and all the lessons from the current "development boom" will be used to create a new formula that provides a path for the establishment of innovative, low-cost, money-making businesses. Maybe this is what I've been missing for the past six months. Then, I could be wrong.
Update: BusinessWeek has a story that Facebook.com – a classic Web 2.0 company – is looking to be acquired for as much as $2-billion. The social-networking company was started two years ago by Mark Zuckerman, now 22, at Harvard University. It raised $500,000 in an angel round from Peter Thiel in September 2004, and pull in another $12.7-million last May from Accel Partners. Mathew Ingram weighs in on Facebook's prospects.
Update: Fred Wilson has a new Web 2.0 business model description called Fremium whereby a company provides a service for free to attract as many users as possible. Then, it rolls out premium services to generate revenue. The challenge with this model is whether users balk at paying for something they've been getting for free.