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Web 2.0 Companies Making Money?


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April 12, 2006

Web 2.0 Companies Making Money?

Heather Green

Mark Pincus asks a pertinent question: Are there any Web 2.0 companies making money? He floats the question along with the idea that the social networking idea is peaking, because of the number of me-too ideas.

Sure some companies can start offering things free, and then move into business models. But the question is, if they don't have much of a business model, and they can't go public (because practically no one can) and they don't get sold (because there are 20 other video sharing sites or 20 other social networking sites), how do they make it through an inevitable shakeout?

09:49 AM

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Is there a first mover advantage? I think so. Only one web 2.0 company will make money for each service (video sharing, image sharing, ajax word suite...). But is it already too late for the newcomers?

Posted by: henri at April 12, 2006 03:47 PM

An old school giant once said to me 'first mover advantage is nothing compared to good execution. Best is better than first'. Works for me.

Are any web 2.0 companies making money? Probably not direct revenues but as value adds etc almost certainly.

The problem with most web 2.0 services as I see it (and I am launching something no one else has done yet in June/July that has a very clear revenue model from launch) are that they tend to be freemium models with too much weighting on the free and not enough on the premium side of the business.

If you give too much away you get great pick up rate and universe growth but low revenue potential. Vice versa gets you less pick up and smaller universe but higher revenue potential for that smaller universe. But the latter has a longer term potential for slower growth whereas the former has potential for huge buzz and quick burnout (sound familiar?)

The trick is to launch with a low free level to start with that is still full of killer app and damn addictive to the audiences involved. Then the premium side of the business has room to support a manageable free side. Otherwise the free side overwhelms the premium potential and the whole show slowly sinks under its own weight.

Me-too ideas means its peaking? Uhm slightly odd logic there...saturation leads to consolidation surely? Saturation also drives innovation and so on.

Namaste

Al

Posted by: cityhippy at April 12, 2006 07:09 PM

Is there a "being a million times better than the alternative" advantage? I think there might. Aim high, have ridiculous quality thresholds, don't release alpha software as beta.

Well, that's our plan. I'd rather be late, than shite.

Posted by: paulpod at April 12, 2006 07:16 PM

I posted in Tech Beat, Rob Hof's Death to "User-Generated Content"? April 05, 2006, "Selling your closes friends for above $1 billion, is the mark of success for all web 2.0 startups."

The today hope for the 20 new web 2.0 anything's, will be to join a friendly ecosystem of a like parent company. And that is what is still opening new Web 2.0 products, finding an ISP or stand alone web service by Microsoft or Yahoo, or into SAP, that will add your better product into there services, is the "it" for web 2.0 startups.

Posted by: Mike Reardon at April 12, 2006 08:03 PM

Yesterday at TechnologyReview.com there was a similar article written by Wade Roush. It was titled “Web 2.0’s Startup Fever”. He discusses Web 2.0 startups bubble and some of the factors that distinguish the successful startups from the unsuccessful. It's an interesting article and reiterates a lot of the same ideas.

You can read the entire article here: http://technologyreview.com/InfoTech-Software/wtr_16688,300,p1.html

Posted by: DIGSox at April 13, 2006 11:20 AM

Judging from the comments, I'd say no.

But does that mean there won't be? I don't think so. (Actually, my joke aside I think there must be some profitable networking companies now). But when I talk to VCs about Web 2.0 the big thing I hear is that these companies are pretty cheap to set up and that's what's so attractive about them. A MySpace, for example, took (I believe) only one big round of VC before it could be flipped to News Corp. for $580 million. The video-upload service Revver (see my post on Deal Flow -- hey, cross promotion!) looks ready to go to market after having raised $11 million.

The point: They don't have to make a ton of money to work. Revver can give its backers a 10-1 return making as little as $5 million to $10 million per year in profit(assuming they don't take more investment). The VC model is to make a lot of midsized scores on small investments for high returns. It's a theory, anyway. But the good part of it is that the numbers don't have to get Yahoo-esque to provide a good return, as long as no one gets all happy and bubble-esque about how much money to spend building these things.

In other words...You...over there...put down that foosball table slowly...very slowly...and take that job offer away from the company chef...

Posted by: Tim Mullaney at April 13, 2006 11:35 AM

There is some truth to that point, definitely. But not everyone will get bought. And we're not sure yet whether the company's that buy them end up making money off you.

Posted by: Heather Green at April 13, 2006 11:57 AM

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Posted by: Ibrahim Bello at April 24, 2006 06:10 AM


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