John

Time’s Up For Web 2.0

In News, Online on May 29, 2008 at 6:44 am

(Pic from CJLUC)

Wow. Looks like this week hasn’t been a happy one for the proponents of Web 2.0. The Register called 27 May the day when “you can begin see the true, scary picture of internet economics today,” following the Financial Times’s report on the state of Web 2.0 in a piece called “Web 2.0 fails to produce cash.

Here’s an excerpt of the gloomy report:

Many members of the Web 2.0 generation of internet companies have so far produced little in the way of revenue, despite bringing about some significant changes in online behaviour, according to some of the entrepreneurs and financiers behind the movement.

The shortage of revenue among social networks, blogs and other “social media” sites that put user-generated content and communications at their core has persisted despite more than four years of experimentation aimed at turning such sites into money-makers. Together with the US economic downturn and a shortage of initial public offerings, the failure has damped the mood in internet start-up circles.

“There is going to be a shake-out here in the next year or two” as many Web 2.0 companies disappear, said Roger Lee, a partner at Battery Ventures.

They did, however, end the story with a note of optimism for the future:

Despite the slow start to money-making by Web 2.0 companies, the trend towards more social online behaviour that it embodies is widely claimed by insiders to be of lasting significance.

“The capabilities that are coming with Web 2.0 are very profound,” said Devin Wenig, head of the markets division of Thomson Reuters. “The Valley is usually right, and it’s usually early.”

The notion that Web 2.0 has been a marketing catchphrase developed by Tim O’Reilly has been well-spotted earlier on by cynical columnists like John C. Dvorak in his piece Web 2.0 Baloney. Despite the warnings, however, many VCs have continued to pour in money into Web 2.0 ventures because “Web 2.0” is such an alluring term to describe the social worth of the web. So much so, in fact, that little attention has been made to the question of monetization.

The “M” word has gained more traction of late as news of the billion-dollar Viacom lawsuit against YouTube exposes the weaknesses of YouTube’s business plan that hinges heavily on copyrighted material. Many analysts wondered how YouTube could be valued at the $1.65 billion acquisition price, considering that it only earned $31m last year. More disturbingly is the fact that since being acquired by Google, YouTube still hasn’t developed any new plans to monetize the number of views.

The logic that looms overhead is: If Google can’t find a way, then who can? What will happen of the remaining Web 2.0 ventures: Is Facebook still worth $15billion dollars? How will MySpace monetize itself to turn it into a profitable venture for Rupert Murdoch?

Watch this space.

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