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Although the Web 2.0 hype is still alive and well, an increasing number of people are starting to recognize that Web 2.0 probably isn't going to be the cash cow that many thought it was destined to be.

Last week, The Financial Times published an article that stated this fact quite bluntly: "Web 2.0 fails to produce cash".

It observes:

"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."

The key point made here is that the "shortage of revenue" has "persisted despite more than four years of experimentation".

This begs the question: just how long does it reasonably take for an industry to come up with one or more viable business models?

Lots of smart people have attacked the challenges related to making social media a viable business proposition and billions of dollars have been invested in Web 2.0 companies.

Yet for all that, the industry has come nowhere near realizing the potential that many bet it had.

Given this, I increasingly feel that most of the people involved with Web 2.0 are "giving themselves hernias" trying to monetize social media.

After all the time, money and expertise invested, at what point should these people consider the possibility that they've been trying to capitalize on a financial opportunity that never really existed in the first place?

Is it 4 years? Is it 10 years? Is it 20 years?

Of course, there are Web 2.0 startups with revenue. Facebook, for instance, is expected to pull in close to $300m in revenue this year.

The company, however, has been valued at $15b - significantly more than the entire market for social media advertising is expected to be worth by 2011, by even Forrester Research's rosy guesstimates.

Facebook is also expanding its headcount rapidly and plans to spend hundreds of millions on capital expenditures.

This highlights the fact that, in reality, the social media hernia is caused not by a complete lack of business potential but by a significant disconnect between fairytale expectations and reality.

Those involved in social media are not simply challenged to find business models that work - they're challenged to find business models that meet unrealistic expectations.

This challenge is compounded by the fact that many Web 2.0 darlings like Facebook have become just as bloated as their Web 1.0 counterparts despite the myth that Web 2.0 startups are "lean and mean."

Of course, some would argue that Web 2.0 and social media constitute a revolution and that those who "don't get it" are the only impediments to some sort of new paradigm.

Some seem to believe that if only the "Old Guard" would change, everything would be different.

But the notion that some "Old Guard" is holding Web 2.0 back is intellectually dishonest.

After all, many marketers, for instance, have been quite open to experimentation with social media. For the most part, however, they simply aren't seeing the return hoped for.

Those who have been involved with social media can thus do one of two things: recognize that perhaps they overestimated the potential for return or give themselves hernias trying to come up with some means to find and measure a return.

The latter is akin to trying to prove that 2 = 1. You can come up with proof, but try getting even the village idiot to buy into it.

At the end of the day, even if one believes social media and Web 2.0 services have changed the face of the internet, it's worth recognizing that change alone does not a revolution make.

I for one tend to think that the internet itself is the revolution. Web 2.0, like its predecessor, Web 1.0, is merely a battle. Some will be won and some will be lost. And to be sure, there will be more.

As it stands now, Web 2.0 has, for the most part, produced entertaining startups that provide more novelty than utility and which have created more hype than tangible value.

Thus, the assumption that Web 2.0 would lend itself to an industry with massive revenues was probably mere fantasy, as Hummer Winblad partner Mitchell Kertzman points out:

"If you look at some of the valuations, you wonder what fantasy of revenues they’re based on."

Unfortunately, the result is predictable:

"'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."

And Roger Lee should know. Lee was an early investor in early Web 2.0 flameout Friendster.

Those who have the most to lose from the inevitable shake-out (i.e. their jobs) may want to consider that there's nothing worse than being unemployed and having a hernia.

As it stands now, getting blood from the stone of Web 2.0 may soon be one of the more efficient paths to both.

Drama 2.0

Published 4 June, 2008 by Drama 2.0

237 more posts from this author

Comments (2)

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David Phillips

A very timely perspective.
The impression one gets is that a lot of people want to monetise conversations.
Go try it in a pub!
Providing the ambience and facility to let people enjoy the conversation is cool. Offering talking points is also a great opportunity.
Being there with things to hand for the conversationalists to use is also good.
But its a way of thinking and a million miles from 20th century marketing - more like 17th century coffee shops.

In a gold rush......... sell shovels.

over 8 years ago

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Joe

>> Web 2.0: the business equivalent of a hernia?<<

Meaning, I assume, that entrepreneurs in the Web 2.0 (social networking) space are giving themselves a hernia by trying to generate revenue here. I hear you but is not the goal of an entrepreneur to cash out irrespective of revenue generation of the business? If the market for web companies overvalues Web 2.0 businesses, so be it. The issue is user traffic and Web 2.0 companies have piles of ever growing traffic. That's the point. Who owns the large Web 2.0 companies? Established players who do generate revenue own them. Why? The traffic spikes.

I think there is still room for entrepreneurs to barnstorm into the Web 2.0 space. When will the established players stop dumping money on the social networking stars? That's the issue.

over 8 years ago

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