Yes, it's a noisy moment to start a conversation about crummy Web 2.0 investments. But even before this latest Dow Jones rollercoaster ride, this sector was already a gaping black hole for investment. While the situation in the tech sector may not be as critical as it was 10 years ago when hundreds of millions of dollars got poured into dotcoms (Cough. WebVan.) – it's moving in that direction quickly enough.
People have been predicting the burst of the Web 2.0 bubble for some time now. And the more investors continue to stuff seemingly worthless companies, or duplicates of companies that have already failed, or inflated ideas with no business models, with millions, the closer we're coming to the whole thing busting at the seams. Again.
It's impossible to tell where in the trajectory we are with this economic crisis that kicked off here in the U.S. and spread globally. And it's unclear as yet how all of this is going to affect the startup landscape. If at all.
"Even before all of this started, it wasn't exactly that easy for a weak startup to get money," said Mukul Krishna, industry manager at Frost & Sullivan , discussing the economic downturn. "[VCs] might have some more negotiation that goes in, and it might impact to a small extent the amount of startups they are looking at. But I see that as a very temporary thing, because, literally, there's no VC right now, even before any of this started, who would not do their deep due diligence before providing funding... just because they had such a bad experience in the early 2000s."
We beg to differ.
On the contrary, there are so many instances of bad investments that it makes us wonder whether investors and VCs perhaps had their memories from the dotbomb era completely erased.
With dollars being carelessly strewn about the entire Web, we at Internet Evolution see the situation at its most severe in five concentrated areas: targeted advertising, social networking, social publishing, video, and search.
What follows is our report on Web 2.0's Biggest $inkholes, broken down into the five aforementioned categories, and supported by some examples of companies that got funded and are having challenges with their business plans (where there was one), or lost it all quicker than it started.
But as a VC, your entire business model is based in the fact that most of your investments will fail, and the ones that make it - hopefully will compensate for those, and then some.
Some technologies are ahead of their times, a failure? Economically yes, but it'tsnot a complete failure.
As the "World's Oldest Lifecaster" on Justin.tv, I have noticed the one year old "web blogging" company has shifted gears, either intentionally or accidentally since it opened it's video broadcasting site to the public a year ago.
The big idea apparently was to let anyone with a webcam broadcast anything not illegal or pornographic anytime they wished, and even had "permanent" archives of everything broadcast, for future viewing or making highlighted clips of previous live broadcasts.
But it quickly became apparent the majority of JTV viewers were not too interested in watching mostly teens broadcast from their bedrooms.
About 95% of all viewers are actually logging in to JTV broadcast channels of live sports from around the world. Of course, this would be great for attracting millions of views monthly, which JTV claims to have done already.
But the hitch is, the sports broadcasts on JTV are all illegally being transmitted directly from users' cable and satellites to JTV servers, and out to the world without permission of the copyright owners.
So what problem is being tackled by the Justin.tv brainkids? The problem of how to provide free streaming of copyrighted live sports from around the world. They seem to have accomplished this. But who is going to keep investing in a company that primarily is enabling broadcasting of live sporting events without permission from anyone. Seems to me that someone better rethink this scheme quick.
That's the problem with the also-rans. They're trying to play catch-up after the winner already crossed the finish line. The successful ones grew organically - that is, they grew because they offered something people wanted.
Yahoo provided an index at a time when there were only scattered, random, and poorly-maintained web indices.
eBay provided an easy way for people to sell and buy PEZ dispensers and other collectibles, replacing (or augmenting) swap meets and flea markets.
Google developed an innovative search algorithm that really helped people find what they wanted.
MySpace connected people who share tastes in entertainment, and replaced mix tapes and xeroxed show fliers with band profiles and bulletins.
Facebook helped college students remember all those new faces in their classes.
All of these successful sites were developed by people who had a particular problem to solve, and found a new way to solve it. Their creators had a particular problem, not just a desire to make loads of cash. The secondary investors, trying to make the "next Google" or the "next MySpace" don't get it. They're playing catch-up instead of innovating. They're trying to throw money at the same business plan someone else succeeded with, and hoping that people will somehow see their site as "different" and switch. But if your friends are already on MySpace of Facebook, why would you want to go to Yet Another Social Network, and do all the same things you've already done, all over again?If Google gets the results you need, why would you bother with another, unproven site, if it just offers the same thing, claiming to be "better"?
First, the VC formula, from the VC point of view, is 1 homerun out of ten, more or less. So the few millions down the drain, often to startup guys (and a few women) with track records, is chump change and probably some kind of tax loss against the big wins. So the fact that some startups went down the drain, taking good money with them isn't in itself proof of anything.
I would definitely like to see a count of startups (and their $$ and their backers) organized by categories (advertising, video, social network, etc.) and by success or failure, and what the founders SAID their unique advantage was or was supposed to be.
2. Nicole, your summaries didn't tell us what the revenue models were for most of the failures, but I would bet they're all tied to your first category -- advertising. Of course, if the sites fail to attract users, there's no chance of advertisers signing up, or renewing their contracts, but overall, the advertising market is being saturated by the flood of new pageviews, and pricing is depressed. Why can't we see some different revenue models?
3. Back to #1, I'd love to see the unique selling proposition for each of these -- and subject them to "crowd-testing" to see how unique they really are!
4. One of your search startups you dismissed by saying they're not up to a million yet, vs. others that were still in the thousands of uniques. Maybe that million will be enough, if it's the right million. But overall, if you're going to compete with a Google, you have to be more than 10% percent better, more than 50% better. You'd better be at least twice as good, if not an order of magnitude better -- in order to get people to switch. Or you have to be so narrowly focused that the right people will pay you for what you do for them, and only them...
5. I'd also like to see the startups mapped on one of those alternative data visualization sites (how many of those are there, and what's happened to them, I wonder), so you can see what's missing -- and maybe inspire some new startups in the gaps, this time!
"yeah, many of those companies didn't make it the whole nine yards but they opened the doors for other companies"
Waaaaaaaaaaaaaaaa?
Why make excuses for these failures? Do you think investors in these companies were ok with them flopping because their money "opned the door" for someone else?
In business (and the Internet is a business) you either fail or you succeed.
Interesting Big Report and yeah, many of those companies didn't make it the whole nine yards but they opened the doors for other companies - which shouldn't be enough to call it a success but not all are meant to.
Another thing that didn't help is that some if those companies created solutions that were misused.
This article was overloaded with web2.0 facts, tragedies and hopefuls, I'll have to go through it again with a fine toothed comb to gather all the goodies in full. Thanks a bunch for such an INFORMATIVE BIG report! It was truly BIG and SOCIAL = )
The ThinkerNet does not reflect the views of TechWeb. The ThinkerNet is an informal means of communication to members and visitors of the Internet Evolution site. Individual authors are chosen by Internet Evolution to blog. Neither Internet Evolution nor TechWeb assume responsibility for comments, claims, or opinions made by authors and ThinkerNet bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
If you’re a slightly gray, mid-level manager who travels a lot, you may be on the way up and worthy of professional respect, but one thing you most definitely are not is “cool.” Still, while today’s youth may think you just crawled out of a paleolithic cave, there may be hope. The iPad from Apple Inc. (Nasdaq: AAPL) (supreme arbiter of coolness) just might make you older guys (or actually old guys like me) cool.
As we well know, the online echo chamber and its increasingly viral and social components can magnify the propagation speed and distribution of stories and rumors, whether true or false.
In his recent Congressional testimony, Dennis Blair, the U.S. director of national intelligence, stated that the U.S. is "severely threatened" by cyber attacks and that the recent Google (Nasdaq: GOOG) attacks should serve as a wake-up call.
Fatal System Error, the book just released by West-coast-based journalist Joseph Menn, is really a public policy statement written as a thriller for a wider reading public. UPDATED 2:45 PM
Smarter Collaboration: How to Thrive in a Challenging Business Environment Market conditions are changing faster than ever, and organizations need to improve their agility and adaptability in order to provide better service and improve processes. The ability to work with customers, business partners, and employees as effectively as possible - while at the same time holding down costs - is a key to success. READ THIS eBOOK
your weekly update of news, analysis, and
opinion from Internet Evolution - FREE! REGISTER HERE
Wanted! Site Moderators Internet Evolution is looking for a handful of readers to help moderate the message boards on our site – as well as engaging in high-IQ conversation with the industry mavens on our thinkerNet blogosphere. The job comes with various perks, bags of kudos, and GIANT bragging rights. Interested?
To save this item to your list of favorite Internet Evolution content so you can find it later in your Profile page, click the "Save It" button next to the item.
Research shows that the youth of today like Facebook – but not blogging or Twitter. Does that mean Facebook has won, or just that it's not yet out of favor? Will all the services we see today fade into Ovaltine-or-Wheaties status in just a few years?
What kinds of companies are doing the most innovation in the data center? Turns out it's midtier enterprises that are taking the "Just Right" approach.
Digg
Del.icio.us
Reddit
Email This
TWEET THIS
