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RIP Twitter

RIP
If there was one message delivered from the venture capital pulpit recently (aka Sequoia, Ron Conway, et al), it’s that if you don’t have a business model, you’re cooked.

Gone are the days when you could start, grow and finance a business based on the notion that if we build it, they (consumers and advertisers) will come…and then somewhere along the way we – just like Google did – will find a viable business model to make it work.

That concept is as dead as the Detroit Lions’ playoff hopes.

What’s amazing is the “Hey Mom, no business model” model was allowed to exist. You would think after the dot-com boom went bust that entrepreneurs and investors would have a better focus on fundamentals such as, say, how to generate revenue.

Not to pull a Robert Scoble and suddenly go doom and gloom but maybe we got suckered again. All the lessons learned seven or eight years about crazy schemes, companies raising lots of capital without a plan on how sell stuff, and the hype/euphoria surrounding the Web’s Next, Great growth phase were mostly forgotten.

Instead, tons of venture capital has been poured into companies that have little, if no, chance of finding a business model. And even if they did discover one, many of them don’t have a business that’s ever going to be viable.

Not to pick on Seesmic but how did it raise $6-million a few months ago? It doesn’t have a business model and there doesn’t appear to be strong demand for its video comment service. Sure, it’s seeing more videos made but that’s not a business.

In many ways, Seesmic illustrates the ugly side of the Web 2.0 landscape – and there are a lot of Seesmic-like startups out there that have been financed because it was perhaps a cool, new idea, it had an engaging entrepreneur or someone believed it was a potential acquisition target as the online giants looked for services to differentiate themselves.

Today, the business model is back in vogue. Without a way to make money, startups will have a difficult time getting financed. And startups who don’t have a business model right now better find one soon, which explains why many of them are slashing costs to give themselves more time to find a viable way to make revenue.

This includes Twitter, which has rumbled along attracting lots of users but, amazing, still have no way to make money. I mean, they haven’t introduced a simple concept as advertising yet. That’s just dumb but this kind of behavior won’t exist for long. (Note: I stand corrected. Twitter launched advertising in Japan last year. I wonder why it hasn’t been expanded into other places.)

More: BusinessWeek has a good column what the financing crisis really means for venture capital. As well, Rafe Needleman put together a list of 11 “troubled” companies, including Twitter, Zillow, Pandora and DailyMotion. That said, I would argue his inclusion of Skype, MySpace and Second Life is puzzling given they’re large, revenue-generating businesses.

Finally, a new study suggests VCs are – surprise, surprise – less confident these days. You don’t need a study to recognize that!

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  • http://www.agoracom.com AGORACOM – George

    “startups out there, which have been financed because it was perhaps a cool, new idea.”

    Mark, I think you know as well as most that I have been complaining about the “cool” side of Web 2.0 since Mesh 2006.

    VC’s were fools for funding them and bloggers were fools for covering them because they didn’t see how much damage they were doing to the Web 2.0 ecosystem. Specifically, the more funding and coverage of “cool”, the more “cool” startups we saw.

    It became a vicious circle that led to the destruction of capital, the waste of talent energy and a wasted opportunity to deploy into the mainstream.

    Too much cool, not enough Freshbooks and AGORACOM. Better late than never but a real shame that an entire industry got caught up in nothing more than school yard excitement.

    Regards,
    George

  • http://www.agoracom.com AGORACOM – George

    p.s. I think Twitter will survive as a result of scale it has now achieved – but it just got in under the wire. If Twitter were starting out today, it wouldn’t have a chance.

    George

  • http://blog.jayeyesea.com jon bradford

    This is a valid point, but given Twitter’s recent investment and also a lead investor (Fred Wilson) who is committed to their investment I don’t see any risk of Twitter hitting the wall.

    Arguably businesses which have recently received funding are in a very strong position to weather the “nuclear winter” if the previous slow down is anything to go by.

  • otoburb

    YouTube had a revenue issue as well, but their presence was like the elephant in the room. Twitter’s best hope right now is to either start generating positive cash-flow, or court the right buyers for an exit.

  • Ryan

    Do you really question the inclusion of Second Life? I wouldn’t really consider their revenue model to be strong, and when furries are the main customer for your product, you’re clearly doing it wrong…

  • http://www.markevanstech.com Mark Evans

    Ryan,

    I question Second Life’s inclusion because it has revenue and a revenue model.

  • http://www.markevanstech.com Mark Evans

    @ Jon: Yes, Twitter has enough financing to see them through the next few years but it still needs a business model. For example, I find it hard to believe it hasn’t done a business version that startups such as Yammer and Presently.ly have launched.

  • Yuki

    “I mean, they [Twitter] haven’t introduced a simple concept as advertising yet. That’s just dumb”

    It’s also false. Twitter’s Japanese version (one of their biggest audiences) is advertising-supported.

  • http://www.briantroy.com/blog Brian Roy

    I’m inclined to agree that bubble 2.0 isn’t all that different from bubble 2.0 (with the exception that the 2.0 version got popped by the economy – not the other way around).

    The problem with twitter is that they have publicly refused to create a business model – and by doing that they’ve let other take their business model.
    Twinkle serves ads in the timeline, we are seeing micro-blogging platforms for corporate (or any other sub segment), and now that they’ve abandoned track via XMPP someone will create that with a business model (ad based?).
    Twitter whiffed when they refused to take the revenue opportunities that were readily apparent.
    More here: http://briantroy.com/blog/2008/10/13/a-return-to-sensibility/

  • http://joiningdots.net Joining Dots

    I don’t think all startups without business models are cooked. Those creating a useful product or service with some element of unique IP that sets them apart from others should be fine for a while, even if they don’t yet have a business model. Google didn’t have one to begin with, they only set-up because none of the players believed there was any business in search.

    The large majority of startups seem to have been creating ‘me too’ copies or tweaks to existing services. They are cooked. But not everyone is in that boat. I think a climate of disruption and uncertainty is the perfect time to start-up, if you have a genuinely good idea. It’s a tough sell to get a company to change the way they work when the economy is stable and times are good. But when times are bad, people are more willing to try something new…

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  • http://www.newmediamike.com newmediaMike

    As you put it mark “What’s amazing is the “Hey Mom, no business model” model was allowed to exist.”

    Isn’t the no business model a close cousin of NINJA (No Income No Job Assets) mortgages? Many start-ups are built on an exit strategy of selling out to someone else, like the houses, sell them at a profit and pay off the mortgage. Not only is the concept wrong, it’s plain stupid.

  • http://www.voices.com CEO

    Mark,

    After pitching in the Dragon’s Den, the Canadian Venture Exchange and in front of a handful of other select venture capital venues, our business was repeated criticized for having become profitable too early. Sounds crazy, I know.

    Apparently, despite us growing at a good clip (400% per annum) the dullness of a sound business lost favor.

    In recent months, there’s been greater interest in what we do, primarily because we built the business with customers, revenues and an excellent service.

    Web 2.0 isn’t dead. Just those without revenues.

  • http://www.gidgreen.com/ Gideon

    All this talk of “business models” still reflects bubble thinking. A business model is not enough for a company to survive. In fact it needs a profitable one.

    Any fool can create a loss-making “business” with enormous revenues. If trinkets cost $1 to make, and you sell them for $0.95, the whole world will buy from you. The challenge is selling those trinkets for more than $1, or working out how to make them for just 90c.

    Only then have you got a “business” worthy of the title.

  • http://wallen.typepad.com/wallen/ Wallen’s

    Which other industry would accept the idea that building a cool product without a business model is sufficient? None. So where just back to standard business… until the next hype…

  • http://www.lucafiligheddu.com luca

    Great post Mark. I just wrote a post around the same subjects yesterday:

    http://www.lucafiligheddu.com/2008/10/its-time-for-a-viable-business-model.html

    It’s time for companies to think about business and not only about “cool ideas” without any ability to make real money.

  • http://www.markevanstech.com Mark Evans

    @ luca: Excellent post. For anyone looking for what startups should do to move forward as opposed to simply trying to save as much capital as possible, definitely check it out at: http://tinyurl.com/3q5uvm

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  • http://www.lucafiligheddu.com luca

    @Mark someone noticed that my post was #1929 on my blog… year of the US recession :-)

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  • http://www.intensedebate.com/people/RohitK RohitK

    In this web 2.0 2.0</a>era revenue model has changed a lot..People had started thinking of new (innovative)ideas to promote.Some are earning good amount also..then why r u thinking that those trouble companies will die soon??