Web 2.0 Frenzy

Posted in Pulpit by Harsha on April 5, 2007

Holy smokes!

(Read this post first and then the above link – It bugs me to read a sentence in a post like "I talked about this, this and this". Especially when you landed here on this page to read this content. So read on…)

This is a great discussion between Dharmesh and Jeff and I think they nailed it repeatedly on the head. I agree with you gents that we are in the next bubble and this notion is given validation by the zero-revenue 2.0ers (not those who actually make money – even a tiny revenue stream ROCKS!)

Their commentary on money made by ads confirmed a long held suspicion of mine – I am a super-user of the web and I never ever ever click those damned ads (unless by mistake). So who is really raking in the money? It most certainly is not the website but Google, Yahoo and gang. So while sites continue to clutter our view with these ads, they make little to no money.

D & J estimated that if you want to make more than $1000 a month through ads, you better have a really popular website. And user generated content on YouTube is not a revenue generating model! As pointed out in the article, professionally created content reigns over user created content. And I have always wondered, why can’t CBS have its own channel online and monetize that through user subscriptions. The value-prop in that would be to provide highly user-friendly tools to help navigate and select content. Or throw out the subscription model and just sell regular TV ads.

Now I know this is bandwidth dependant, but that did not stop (then and now, with deep pockets from its new owner) YT from bleeding cash to pay for some kid to post a video of a skateboarder bang her head on the wall!  Like Dharmesh writes, until their sale to GOOG, YT was derided for hosting mostly (illegaly-acquired) copyrighted content and paying big bucks for bandwidth. Post-sale, they became the darlings, sparking off what happend in the 90s (that time it was IPOs, now its buyouts).

I’ve been wondering a lot about and their wiki business. Here is a team of 4-5 nice people, who have built a website that features local content. And how did they populate their beta version? The founders walked around Boston making note of parking under 10 bucks an hour and the nearest pizza joint to South Station!! The funny thing is they said they did this because a lot of wiki sites are empty and wanted their beta version to  be populated to show off its features!!

But like D & J discuss, the YT acquisition and other buyouts have fueled sites like Povo to pray for a "cool-tool" sale to one of the big dawgs is the exit strategy for any business. You ought to be near damn lucky like surviving two lightning strikes, if you want to make that kind of a payday.

While Dharmesh says he is an "unrepentant capitalist", he shares a brief touching comment on innovation. Really, where is the innovation in these ideas? Povo is so reminiscent of the 90s!

However, the saving grace I think this time around, is that these jokers won’t take down the entire economy with them. Last time around, too much was invested in the process; too many people were ditching real gigs for false hopes and like a moth to a flame, the stock market drew out logical and conservative investors into the lavapit. But now with a tigher IPO market, I think the rest of us will be generally protected. Yes, some shareholder value will be lost (and rightfully so) but I don’t think the effect will be across the board. Instead of a pop, we may hear more of a slow deflating sound.

Even though the new web richness is possible thanks to Adobe for AJAX, you can’t build an entire viable business just on a platform and also create real value for users. The fundamentals have not changed my friend! You still have to find and fill a real need and make money while doing it.

While it is easy to be skeptical, there have been some radical changes to our world. We’re more broadband-enabled these days; so that can count as innovation. We’re more accepting of using the Internet as the primary source for information and research versus other modes. Online purchasing is growing faster than offline purchasing. And on and on we go ….

But sadly, in this confusion and noise, the good guys get the least attention sometimes. You know who you are! In my world, if you make a buck through value-innovation and not through pure technological innovation, then you’ve created value. Check out this interesting discussion on the post:

If you can build a business that, once established, slowly earns money, and earns more with each new customer, then your limiting factor is your customers — if you can build something that has sufficient appeal, you will eventually retire rich. But if your business is one that isn’t directly monetizing your customers, such that each new user actually loses you money (like YouTube and their bandwidth bills), then your limiting factor is your burn rate and the depth of your pockets. 

Read more books and I will strongly recommend BOS. If you feel you’re better off being a know-it-all and continue to tinker with technology, then good luck to you. As a start, BOS can easily show you if you’re headed in the right direction.

(Ok, now go and read Holy smokes!).

– Harsha Raghavan


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