New Year's Resolutions for Web 2.0

There will be lots to watch in 2008, as Web sites struggle to turn a profit. The fallout won't be pretty

by Sarah Lacy

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My husband and I spent Christmas on a beach in Mexico. Amid piña coladas and fish tacos, I thought I should do something responsible, like make some New Year's resolutions. The list turned out pretty similar to ones I've crafted before: eat better, exercise more, work harder, play nicer with others. I thought about making a list for my husband next—you know, things like cook dinner more—but figured that may fly in the face of the whole "play nicer with others" item on my list. Not a good way to start the year.

So I embarked on a list that might have a more lasting impact. Herewith, my resolutions, admonitions, and predictions for the Web 2.0 world I watch so closely. (For ideas specifically on the likes of Google (GOOG), Digg, and Facebook, see the accompanying slide show. The following are aimed at the consumer Web in general.)

Revenue Wrangling

For starters, don't let the drive for revenue foul up a great thing. We all know the key to a great consumer Web company is to lure the audience first, and then find a way to monetize it. Back in the 1990s, when the cost of luring what we then called eyeballs was astronomical, this idea was next to impossible for most. Now that the cost of starting a Web business has plummeted, the model makes more sense.

Here's the rub. Users get so accustomed to a free service that later attempts to wring money from it can make waves. The backlash can get ugly in a world where sites are based on "community" and angry users can marshall a loud, public megaphone. Just ask Facebook, forced to backpedal more than once on features that users considered invasive. Why do you think Google's YouTube hasn't been able to squeeze much revenue from its torrent of 100 million videos a day? Executives are terrified of angering viewers and content providers with those lucrative—and intrusive—pre-roll ads, which appear before a video begins.

The Web sites are in a tough spot. They need to turn a profit. And on the Web, we consumers have always had two choices: Pay or be advertised to. I'll take advertising over paying to use a social site any day of the week.

Video Confusion

For many Web 2.0 executives, the tradeoff isn't so simple. Consider Twitter, the site that helps users pepper their contacts with brief, frequent status updates. For months, I thought the Twitter lovefest was confined to the Silicon Valley echo chamber. But last month, while I was in Paris (BusinessWeek.com, 12/20/07), I realized that techies and entrepreneurs from all over the world are gaga for it, too. It has a transcendent quality few Web 2.0 sites have achieved so soon out the gate.

The beauty of Twitter is its simplicity—we're talking simplicity on the level of Google's front page. But I worry what happens when Twitter starts integrating advertising into that simple, Spartan "What are you doing?" window. People don't want ads being pushed to their cell phones. Nor do they want them popping up on a desktop, where most of the Twitter action takes place.

Already, a popular third-party Twitter application, Twitterific, has started making users pick between ads and a subscription. That might be the new model: Make users pick their poison. It has worked for Ning, the build-your-own social networking tool founded by Internet entrepreneur and investor Marc Andreessen. We'll no doubt learn before long whether it can translate to other sites.