Andrew Chen is asking which startup's collapse will end the Web 2.0 Era?
End the Web 2.0 Era? Wait... so are we going to ditch open source, go back to high burn rates, long and slow builds, and not focusing on data at all?
How exciting for Microsoft!
Back in 2005, Tim O'Reilly attached the name "Web 2.0" to a set of emergent technology principals--guidelines for building "lightweight", data-focused, web services. Most of the services that inspired such categorization never consciously decided to be or aspired to be "Web 2.0 companies". That's usually the way evolution happens--natural selection and environmental adoption spits up a set of traits that get adopted through natural selection and some anthropologist comes along later and throws a taxonomy on it--drawing lines across the gray areas almost making them seem intentional.
I guess that's how the intelligent design theory got started.
These companies were simply pushing the edge of what we've come to know as best practices. They aimed to solve particular sets of problems given current technology capability, cost and penetration. Stewart and Catarina weren't trying to build a Web 2.0 company at Flickr, nor was Joshua at del.icio.us.
In fact, I can't think of any startup where the intention was to "build something Web 2.0". Instead, the thinking was usually, "Wouldn't it be better if you could see the reviews of your friends?" or "Instead of making content, why don't we let our users share their own content" or "Let's just code this up in Rails, put out an alpha, and see what people think of it."
It all just seemed easier/quicker/more efficient to accomplish certain things using these Web 2.0 principals. It was like that even before Web 2.0 had a name. You just had less people familiar enough with the technologies to apply them to real problems and build solutions until we popularized them with a monniker.
However, from a business perspective, grouping the set of companies whose products exposed these principals is a gross miscategorization. Spread out across a myriad of uncorrelated industries, some were amazing ideas, many were not (as normally happens with innovation and entrepreneurship). Some had clear business models, others did not--and to confuse things, others had potential business models they chose to forgo to get scale or market share.
Andrew writes, "it turned out that most of these startups didn’t work out as real businesses."
Most startups don't work out as real businesses. That's because creating something from nothing is hard. It isn't because they're "Web 2.0" any more than it's because they were using open source technology. You wouldn't turn around and say that most startups using open source fail and then blame open source, right? Most startups ultimately don't make it anyway--and it usually has something to do with poor execution, bad management decisions, failure to solve a big enough problem or provide the right solution, etc.
Here's the truth: There never was a Web 2.0 any more than there ever really was a Yugoslavia. You just can't arbitrarily tie things that have very little to do with each other and slap a name on it--expecting it to be cohesive. If I use AJAX and Rails to build a group scheduling application for enterprises, it requires a completely different knowledge base and business accumen to make a Rails+AJAX real estate investment modeler--and no boom or bust in the Web 2.0 space will affect both equally.
At the end of the day, these companies will live and die because of their underlying sector and management execution more than whether "Web 2.0" falls out of favor. Indeed.com is much more correlated to recruiting than it is to Web 2.0. Zoho needs to execute a good sales strategy for the SMB market rather than it needs to keep up with all the companies reviewed on TechCrunch. Muxtape didn't die because it was a Web 2.0 company. It died because it stepped in the mindfield we know as the music industry without a map.
Reporters and pundits will undoubtedly call the shakeout of companies started '04-'07 the end of Web 2.0, but the reality is that it's really just the end of a bunch of pretty unrelated businesses that had poor value propositions or business models--i.e. par for the course in Startupville. It's hard to be successful--even in good times. Most startups don't make it.
In the beginning and in the good part of a cycle, the busts don't get the headlines. They're dwarfed by the launches and the fundings. With less fundings, and more companies with their heads down trying to build businesses than wasting their time pitching to TechCrunch, we were bound to hear more of Chicken Little. Since crashes gather more clicks than stories of unrelated individual companies running their course, that's what we have.
Silly bloggers. Web 2.0 can't die. It never existed in the first place.
Great comment on Andrew's post:
"An interesting difference between this wave and the experience we went through in 99-01 is that most of them will not collapse in big ways. Think about watching a 2 story building versus a collapsing old Vegas casino.
1. They are smaller, and even ones that are bigger can operate very small. I wonder what a 200 person Facebook looks like financially.
2. The ad revenue is alot of the time being done with ad networks that did not exist in 99, including Google so there is less fixed costs.
3. I don't know anyone who has bought an EMC box in this wave, infrastructure is much less of a fixed cost
4. Not alot of Oracle licenses that have to be paid up each year anymore either.
5. And most importantly, I think we all learned something last time and things just did not get as crazy in the start up world.
So maybe just like there weren't any big exits, there might not be any massive failures. But I guess we all know there will be some. Who will be the pets.com of Web 2.0 ?"