The Web 2.0 paradigm has a fundamental flaw: it doesn’t define the creation of effective, sustainable business models. Instead, it supports building eyeballs through community-centric activities, while trusting the community to suggest the appropriate business model over time. That sounds more to me like Web 1.0 meets 1960’s flower-power. I thought all of us who went through the dotcom crash took an oath swearing that this time it was going to be about usefulness and business models. How soon we forget.
Business models. Remember them? Anyone who’s ever started and built a business of any kind, web-based or not, knows you must have one or more means of generating revenue or you eventually run out of money and go out of business. Then everyone loses.
Well, maybe you learn something. The way it’s going, most Web 2.0 companies and their investors are going to be learning some expensive lessons.
Under the Web 2.0 paradigm, companies launch early to get eyeballs, then wait for their users to tell them what business model they’re “comfortable” with (if any), all the while burning through their venture capital. News flash: your users don’t know and don’t care about your business model! They just want your site to be cool, fun and free, and to be left alone as much as possible to do what they want. Worse, it’s highly unlikely that they’ll ever pay for something you already gave them for free!
When I ran a consulting company, we always explained to our clients that contracting was what we did when they had the ability to assess the quality, effectiveness and completeness of our work. If so, we would simply supply the workers and they’d supervise them. However, our clients rarely had these assessment abilities - which of course didn’t prevent them from thinking they did!
If our clients were willing to admit they didn’t have the ability to assess their project’s quality, effectiveness and completeness, then to succeed we needed to create tangible definitions in their terms – a map - for their goals, and we would provide consultants with the ability to lead them across the terrain to their destination. Most important, we believed we had a moral imperative to do this, or else not engage with the client. That’s what we called consulting.
The creators of Web 2.0 sites are depending on their users to assess the quality, effectiveness and completeness of their business models. Go ahead, mom and dad, ask your kids how you should go about making money to support them. See if they know. Now imagine that you’re dependent on your kid’s ideas to keep a roof over everyone’s heads. The kids still get to have exactly what they want, while you struggle to learn how to do the new work, and pray there’s money in it. Meanwhile, you live on food stamps.
Now I’m not saying Web 2.0 site users – overwhelmingly those under 34 - aren’t capable of suggesting a business model. It’s a different problem: to them, the web is all about abundance. They know that if they don’t find what they’re looking for on one site, or if they have to start paying where it once was free, there are a hundred similar – and free – sites a few clicks away. They simply have no incentive to help you solve your problem.
What I am saying is that only a handful of Web 2.0 sites built without a sustainable business model from day one are going to survive long enough to find a model. What’s sad is that this is the same me-too mindshare frenzy that characterized Web 1.0. We all know how that turned out. Ignore history, and you’re doomed to repeat it.
To be fair, the Web 2.0 paradigm has been very successful for creating cool, fun, mostly free and low-tech destinations that grow exponentially through user contributions. MySpace, YouTube and Facebook are elegant and simple. Yet none of these sites were created with any business model in mind other than advertising or being acquired. Luckily, two of the three have already been acquired. Yet it’s easy to see why an increasing number of companies with a Web 2.0 framework are launching without business models: they’re banking that Uncle Google or Auntie Viacom will find them useful, pay the rent in the nick of time, and they’ll be saved.
Blindly following the Web 2.0 blueprint for creating low-tech, user-generated, data-driven companies is so very 1960’s, with communities and micro-economies replacing communes and grow-your-own. But YouTube, MySpace and Facebook have long outgrown their cozy little community status. They're urban sprawl now, and it gets ugly out there.
The truth is that Web 2.0 simply doesn’t address how you monetize social networks beyond some vague idea of using Google AdSense or finding someone to buy your company. Perhaps it’s time to jump directly to Web 3.0 and Social Networks 4.0, where there’s a purpose and a business model. Show us the money!
Web 2.0 companies have certainly gotten a lot of eyeballs, and I have deep respect for that. But it’s only been seven years since the dotcom crash, which I lived through at Edmunds.com, where hundreds of companies with lots of eyeballs raced through insane amounts of stupid money on the road to finding a business model, then crashed and burned by the side of the road. It took years for the smoke to clear, a lot of lives were ruined, and the economy tanked. We're headed there again. It's only a matter of time.
In my humble opinion, the only companies with Web 2.0 pedigrees who will experience real long-term financial success will be, like many of the best viral videos on YouTube, mash-ups between Web 2.0 stuff that people find useful and real-world business models that are sustainable. And those successful companies will start out that way, with a map in mind, and not wildly change direction as they go. For the others, it’s going to be a lot harder than they think to change direction when they’re halfway across the desert and they run out of gas and water.
dm
