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Web 2.0, Revenue Models and Profitability: A Web 1.0 Comparison
Not only are most of the hottest Web 2.0 startups unprofitable, quite a few lack viable revenue models altogether. This has led cynics like me to criticize these startups quite harshly over the past several years.
Twitter, for instance, is the perfect example of the prototypical Web 2.0 startup that has captured the hearts and minds of the Web 2.0 "community" but hasn’t captured any real money (outside of venture capital).
When confronted with questions about the financial viability of their hottest startups, Web 2.0 proponents usually have a similar response: Rome wasn’t built in a day. When Google launched, we’re reminded, it didn’t know how exactly how it was going to make money. For young Web 2.0 startups that are growing rapidly, we’re often told that growth and "critical mass" are more important than revenue models and profitability.
As we recently learned that Digg was still losing money on revenue numbers that look quite paltry, it occurred to me that Digg and some of Web 2.0’s other hot young startups really aren’t hot young startups anymore.
Facebook was launched in February 2004. Digg was launched in November 2004. Twitter was launched in July 2006. Facebook is almost five years old, Digg is just over four years old and Twitter is two and a half years old.
They all share a common trait: none has developed into a self-sustaining business whose financial future seems assured.
But Rome wasn’t built in a day, right?
When Google launched to the public in 1998, AdWords wasn’t a part of the "business plan." Yet in 2001 – the third year of its existence – Google was already turning a profit. In an August 2001 BBC article, it was reported Google had been in the black for the past two quarters and that the company wasn’t making a little bit of cash – it was making a lot of it.
Eric Schmidt’s words: "We are quite profitable. We are not talking about 1%."
And what of other brands created during Bubble 1.0 that went on to grow into large enterprises? eBay was profitable almost right from the start.
According to an old press release, Yahoo reported a negligible profit in Q4 of 2005 – before it went public. Yahoo was officially incorporated as a business on March 1, 1995.
In short, three of the most prominent creations of the first .com boom were able to generate revenue and profits much faster than their Web 2.0 counterparts.
This is quite curious for two primary reasons.
The Myth of the Lean, Mean Startup
One of Web 2.0’s biggest myths: it’s far easier and far cheaper to get a startup off the ground today than it was a decade ago.
Citing the wide range of mature, open-source technologies and the abundance of talent available today, Web 2.0 proponents have told us that taking an idea from concept to reality, getting it launched and growing it can be a cheap affair.
If that’s the case, one would logically assume that today’s Web 2.0 startups would have developed into lean, mean revenue-generating machines. Instead, we see the exact opposite.
Facebook has over 600 employees and has raised over $400 million in capital (and is reportedly still looking for another big capital infusion). Digg has over 70 employees and has raised $40 million in capital. Twitter has somewhere around 25 employees and has raised $20 million in capital.
In other words, Facebook is a bloated company that spends money like it’s going out of style. Digg is a bloated company that is losing money on a marginal amount of revenue. Twitter is, relatively-speaking, the leanest of the bunch and ironically, the only company in this trio that could realistically implement a successful paid subscription model. Yet founder Biz Stone believes a business model could be a "distraction" at this stage of the game. Given Twitter’s recent security mishap, perhaps he’s right.
The reality is that while it’s true that open-source technologies and a large pool of development talent make building certain kinds of Internet "products" cheaper today, building a product and building a business around a product are two very different things.
Instead of following the lean-and-mean philosophy that Web 2.0 proponents promote, Web 2.0’s biggest stars have opted to put revenue models on the back burner. Instead, they’ve raised large amounts of capital at exorbitant valuations under the guise of supporting "growth" and achieving "critical mass." They figured that the revenue and profits would come eventually but clearly that was putting the cart before the horse.
This approach was fueled not only by the overabundance of easy venture capital money that needed to be invested and the promise of YouTube-sized acquisitions but by a stark truth: scaling services like Facebook and Twitter is not cheap.
Facebook’s $100 million debt financing for the sole purpose of leasing servers highlights very well the fact that offering free, advertising-supported services to millions upon millions of people is not a lean and- mean undertaking. The popularity of "open platforms", in which services need to allocate even greater resources to support applications that third-party developers have created, only exacerbates the situation.
In short, the model exhibited by the poster children of Web 2.0 does not reflect reality. Not only have the people who run Web 2.0’s most popular services largely bought into the model of VC bloat, the very nature of their services does not permit them to follow a lean-and-mean approach as traction is obtained.
The AdSense Economy
If you started an advertising-supported online content destination in the late 1990s, life was a lot tougher than it is today in many ways.
Back then, the nascent Internet advertising market was starting to grow rapidly and while there were huge opportunities for those entrepreneurs who were able to navigate it successfully, the market’s immaturity posed a lot of challenges.
That market is much easier to navigate today and Web 2.0 has been the beneficiary of what I like to call "The AdSense Economy." Thanks to AdSense, you can build an Internet product, launch it and "monetize" immediately by slapping up some ads courtesy of the friendly folks at Google.
In his article, "What is Web 2.0?", Tim O’Reilly lists AdSense as Web 2.0’s equivalent to Doubleclick.
And for good reason. AdSense (and programs like it) have been the initial primary source of revenue for many of the Web 2.0 "startups" that have launched (many of which you’ve never heard of, many of which you’ve already forgotten and many which have already disappeared into obscurity).
In theory, programs like AdSense give Web 2.0 upstarts a key advantage over their Web 1.0 counterparts: they permit low-effort monetization. If you launch a new service and manage to attract 10,000 visitors in the first month, you can monetize that traffic with almost no effort beyond adding a few lines of code to your website. Google, ad networks and other online ad companies do all the heavy lifting finding and dealing with advertisers.
Yet being able to monetize doesn’t mean being able to monetize effectively and profitably. The truth is that programs like AdSense are quite underwhelming and any service with real scale is not going to achieve anywhere near the same kinds of results with AdSense that it would with a dedicated ad sales staff (either internal or outsourced).
Sure, you’ve seen photos of AdSense webmasters holding up a $100,000+ check from Google and there are individuals and companies who make lots of money with AdSense. But they’re the exception, not the rule, and most of them are running services that are conducive to success (read: not "social media" services that tend to suffer from severe ad blindness).
But taking a step back, this isn’t about AdSense specifically. It’s about the mature online advertising market.
Many seemed to have believed the fact that this market was more mature than it was back in the late 1990s would be beneficial to Web 2.0 companies. After all, the online advertising market today is much more efficient and consists of a much bigger pie. Young Web 2.0 startups looking to tap into this should have an easier time, right?
Wrong. Market maturity is a double-edged sword because today’s mature online advertising market is:
More sophisticated. Ad buyers know a lot more about what they’re doing today than they did 10 years ago. This can make it more difficult for young startups to sell directly to brands and ad agencies because, even though a lot of money still gets thrown around and wasted, by in large, brands and ad agencies have a much better grasp of the digital space.
More competitive. Brands and ad agencies have a lot of options. In growing markets with lots of competition and few barriers to entry, a common characteristic is that the strong get stronger. Even though the online advertising pie is growing, major companies like Google and top properties and networks that register with comScore and Nielsen inevitably take a larger chunk of that pie because they represent the best avenue for efficient allocation of online ad spend in a cluttered online world.
Growing slower. Inevitably, nascent markets eventually mature and as they mature, growth slows. While the growth of online advertising (and the potential for future growth) is still quite significant, this market isn’t a plane that’s still sitting on the runway. What does this mean? It means that even if online advertising spend holds up relatively well during a deep recession, naturally slowing growth that’s inevitable in a maturing market could make the situation feel worse than the numbers might otherwise indicate.
Today’s economic downturn is far different (and far more severe) than the downturn in 2001 and that previous downturn, while painful for many, was actually not as problematic for the online advertising market as it should have been. The reason: the market was still so young and growing so much that the natural momentum it had for growth offset the macroeconomic climate. Today, a more mature online advertising market coupled with a more severe downturn will not be beneficial for Web 2.0 companies that are under the illusion that online advertising is recession-resistant.
All told, The AdSense Economy is not been as beneficial to the bottom line of Web 2.0 startups as many had argued it would be.
Conclusion
As we head into 2009 facing one of the toughest economic environments in decades knowing that the fun and games are over, it’s time to face the reality: the Web 2.0 we have today is not the Web 2.0 we envisioned a few short years ago.
The most popular Web 2.0 creations have not been cheap to grow and operate. They’re still struggling to find revenue models that will serve as the foundations of self-sustaining businesses and even those startups that generate significant revenue in absolute terms (namely Facebook) cannot justify the valuations they’ve been given. And profitability is still largely a pipe dream.
While it’s possible that Web 2.0 stars like Facebook, Digg and Twitter will turn things around, it’s quite clear that these companies are not like many of their hot Web 1.0 counterparts, which, despite having to battle challenges of their own, were able to develop viable revenue models and turn a profit relatively early on.
Given all this, for Web 2.0 proponents who continue to make the same asinine argument, "Don’t treat Web 2.0 like Web 1.0!", it’s 2009 and I concede defeat. Web 2.0 is not like Web 1.0. It’s in a special (ed) class of its own.
Well written post.
Thanks Drama 2.0,
eHire agrees with this article, which is why our application will not include any advertising as part of its revenue stream and will charge users a small fee from Day One (after free Beta, of course). And we (unfortunately) also agree that it’s not cheap to grow and operate a Web 2.0 company, if done right – methodically, etc.
- Christa, Director of Business Development for eHire.com
Great post by Drama 2.0
I still think click and mortar model that make money from the start is better than hypes social networking services, look at Zazzle, Threadless …
“building a product and building a business around a product are two very different things.”
Every thing is summarised in this sentence…
Comparing this two is like comparing a brand new car with a good ooking ten year old car. Although 2.0 is new It can’t guarantee that it will do the job. Besides 1.0 has proven it’s worth.
Nice post though.
Nice post. One must also consider the other exit option which is to be acquired. With large audience sizes there is significant inherit value being created – just not through revenue models that these companies can sustain themselves. Owning the profile and social graph of hundreds of millions of Internet users can potentially be of huge value. Even if they aren’t able to monetize the traffic someone else with more capital and more complementary assets could.
I personally believe that companies like Facebook and Digg should have thought about monetization earlier in their development, right now Facebook is hoping that they make their services so unique and “addictive” that they will eventually be able to charge subscription fees for their services — I doubt this will be the case, because then you can just pickup and move to another social network (they’re not so unique anymore, you can find a million other free services, and more specifically, you can find a niche social network that fits you personally). I’ve already seen petitions go around on Facebook about the issue of people leaving if they start charging.
It seems web 2.0 is taking time to develop a path of profitability given the tough times faced by web 1.0 and the ease of technology today. Wonder how many of web 2.0 owners consult big brand names/industries which need online presence?
True, many Web 2.0 have drained VC funds and shut doors when the cash ran out.
However, 2.0 should be looked at as a transition, not a “final destination”. I say this in the view of the maturity of most of the 2.0 offerings.
All said, the 2.0 industry maturity threshold is quickly being attained, and can be detected in 2 observations:
1 – the building blocks are becoming modularized – in any engineering discipline, modularization is a sign of maturity.
2 – the consumer pricing is tending to zero – in a multi-player market, low or zero price to the consumer means that its adoption, sponsor participation, scale and production efficiencies have reach a level where delivery can be sustained to the consumer at zero cost.
Everything is about open source today. People don’t want to pay for any of these services or be bombarded by ads on these services.
The funny thing is I think that a lot of premium services are doing the best. Networks that are closed and require high monthly fees to be part of something ultra exclusive. They don’t have nearly as many members but the members are a lot more focused and involved. Maybe that’s the way these things will end up. Pay for the best parts or use pieces of them for free.
So Jared, what are some examples of closed networks you’re aware of?
I’ve never understood how there wasn’t an inherent contradiction between all the talk of cheap startups and companies like Facebook raising hundreds of millions of dollars (much of it for servers) and, as recently as last year, projecting 1000 employees (Digg seems even less “lean and mean” given the nature of their services). Thanks for addressing this.
Excellent article, good to remember the last bursting of the first web valuation bubble.
The hard thing for most folks to realize is that bleeding edge users (i.e. geeks) are the ones that generally get these services rolling. This same group is almost impossible to monetize into a valid business plan.
The Web 2.0 stars you mention will not have valid business plans until they go mainstream. Creating a business model that is built on the backs of early adopters is almost assuredly doomed to fail. Of the ones you mention, which have any hope of breaking into the mainstream?
Google works because casual web users (read- my Mom and Dad) can understand it and finds it useful. You want to build something for the web that will make money? Target the mainstream, not early adopters.
David
@dcanfield
You’re correct about Digg and Twitter, but absolutely wrong about Facebook. My parents have more friends on Facebook than I do, and they all use it a lot more. Almost six months ago, Facebook was seeing 36 million monthly uniques in the US, or roughly 12% of the population. With the kind of month-over-month growth rates they’ve been experiencing, I wouldn’t be surprised if they’re closing in on 20% of the population of the US. The numbers are even better in some overseas markets. Facebook is hardly early-adopter anymore.
We’re about to launch our first web collaboration app colaab but already have a clear monetisation process in place, rather than offering it completely free to begin with.
I agree with Jared in the sense that web 2.0 companies that require subscription but have a focussed, dedicated group of users will have better sustainability and do better in the long run than organisations like Digg and Facebook who require round after round of funding.
Bob
Excellent article Allen. Thank you!
Thanks Alexander! I must say that it was Drama 2.0 who authored this article so I will pass along the compliment!
I may be a bit biased, but Web 2.0 is more than just Twitter, Facebook, and Digg. There are plenty of web 2 companies making real money. Companies like MySpace, Offerpal, Rockyou, Flickr, and 37signals.
The problem with many web companies is that their MBA teams want to position on growth rather than profits.
If Facebook worried about revenue, it would have a greater chance of pissing off its users. Right now they are all working on the drug dealer model and trying to get the web hooked on their services.
This is not even the beginning of social services on the web. Facebook, Google, and MySpace are more akin to Microsoft, Apple, and IBM than you might think. Try to imagine where the web will be when the social web has had twenty years to write software and integrate code into other parts of your life.
I am telling you its just begun.
Justin: MySpace has certainly made a bit of money. It has probably monetized more successfully than any other Web 2.0 company. Yet its long-term prominence and success is anything but certain.
You may think that Offerpal, RockYou, Flickr and 37signals are great companies, but I have seen no evidence than any of them is making a significant amount of money (i.e upwards of $50-$100 million/year). I’m most familiar with Flickr and I’m sure subscriptions produce decent revenue but it has done little for Yahoo in the overall scheme of things and in the photo space, it still has relatively limited market share.
Nonetheless, if Web 2.0 proponents are going to hold out a handful of companies that actually have non-negligible revenue (and might even turn a small profit), they can’t ignore the legions of Web 2.0 startups that don’t, including quite a few that raised more than enough capital to give it a go.
Facebook and MySpace are nothing like Microsoft, Apple and IBM. While I won’t belittle what it takes to keep massively popular websites like Facebook and MySpace running, Microsoft, Apple and IBM produce real technologies that individuals and businesses actually pay money for.
As for your statement, “Try to imagine where the web will be when the social web has had twenty years to write software and integrate code into other parts of your life,” I’d point out that a viable consumer Internet has existed for barely more than 10 years. Think of how much has changed over that period of time. Do you really believe we’re capable of predicting what it’ll look like in 20 years?
This is just the beginning. But the “social web” isn’t the be all and end all. It’s but one fork on the chart of the Internet’s evolution and if in 20 years we’re still talking about Facebook and MySpace, that won’t be a good thing. Do you wish that Geocities was still top of mind in 2009? Didn’t think so.
Finally, if you think that code gets integrated into people’s lives, I think you need to spend more time outside. Code is code.
Excellent post!
Still, I believe that the evolution web2.0 has taken was all-in-all a positive one. By focusing on the product instead of a business plan, small companies succeeded in creating amazing pieces of software, introduced (r)evolutionary ideas and helped create the new online era. It’s a shame to see many of them disappear in oblivion; nevertheless, they left a legacy behind. A legacy former employees or users can take over.
I believe that the internet is still very young and the advertising market has come to maturity because people think old school. Contextual and behavioral are old stories, yet advertising remain a necessity. We might see very soon new business models popping-up that will this time revolve around a change in the way we perceive and experience advertising.
Outstanding piece. It’s been somewhat of a mystery to me that services like Facebook haven’t instituted some form of freemium model yet. I understand that you want to keep the bar low for newbies, but there are clearly features/functionality that a large number of users would pay for.
I’m sick of hearing the argument that "if they charge then someone else will simply replicate the platform because it’s so cheap to construct". Your piece does an excellent job of highlighting how expensive these platforms are to run once they reach critical mass.
Concentrate on building features/functionality that are worth paying for.
I agree that a cleverly executed freemium model offers the best hope of monitisation of the early adopter (e.g. Flickr Pro). I also think it is very early in the lifecycle of the internet and other models will emerge (Adsence, after all, came from nowhere – well, Overture but intelligently implemented)
I agree that a cleverly executed freemium model offers the best hope of monitisation of the early adopter (e.g. Flickr Pro). I also think it is very early in the lifecycle of the internet and other models will emerge (Adsence, after all, came from nowhere – well, Overture but intelligently implemented)
I have worked for a web 1.0 company for nearly 5 years. I found it immensely frustrating watching the young 2.0 upstarts get piles and piles of funding thrown at them without any sort of viable business model.. while we had an amazing client list (Bp, Shell, USCG, USDA, etc.) and a viable business model.. but no one was interested.. all our potential VCs wanted to see massive growth.
Well.. something tells me we’ll be around much longer then most of them.. and I wouldn’t be surprised to see all the VCs come knocking on our door again soon.
Thanks for the article… good stuff.
The reason that MySpace works is because they sold to a company that had ‘relationships’ in the media industry. Working for MySpace is not like working for any of the other social networking companies. Working for a ‘republican’ that likes Obama because it will sell media is why Fox and MySpace get it.
Its not about control, but its about relationships, connections, and content. News corp has been around for a Long Time and it will be around for a long time.
Microsoft was and is working on ‘Social Tech’ as part of its future business plan. The whole idea of buying Groove Networks should point to that. Also watch how the CEO’s get pushed around at MS in the next 2 years.
One could argue that the reason that the Xbox is beating the ps3 is because of web 2 stuff. I happen to know that Microsoft’s Xbox team seems to get it better than most of the rest of the company and they are getting moderate awards from the consumers for it too. Look at the Zune, same group, great innovation but in the example of MS Z1 was a test, Z2 got better acceptance, and Z3 will be a force to reckon with. Microsoft entered the console war with Dreamcast and the 360 is so much farther along.
Microsoft is getting into the enterprise social market, they almost bought Xobni, and they are working on a project called TownHall.
I would like to see IBM buy Yahoo, its good for the web, and if the two companies do what I think they would with such a merger, it will create a nice triangle of competition between MS, Google and IBM.
The Enterprise will get social in a big way.
You will also see your car, cell phone, and your home getting social.
Social tech like pandora, prosper, and ycombinator are only in their infancy.
Things are changing in a big way, but it’s hard to see when you are looking at facebook, twitter, and digg as market leaders. All of these companies are funded by VC’s that want a big payout rather than looking at value, time and how they affect peoples lives.
Heck Virgin Money has a better shot at doing something interesting than Facebook. Facebook is such an ivory tower that they can not accept where their current value is.
Companies that have Good cash flow and innovation now WILL out pace companies that are taking their time at revenue.
Justin: you are correct in noting that MySpace has done quite well in large part due to News Corp.’s status as a media titan.
But since you work for MySpace (apparently), perhaps you’d like to share your opinion on why MySpace missed revenue targets or explain how you plan to deal with the plateau in growth you’ve clearly reached.
Relationships only go so far in tough economies and growth is finite.
I don’t dislike MySpace (from a business perspective, it’s run better than Facebook) but I think we should be honest about the fact that it’s not the best business in the world.
Everybody in Silicon Valley has been working on “social tech” and talking about social networking in the enterprise.
But I think you fail to grasp that social networking and social media is largely a feature. It in and of itself is rarely the foundation for a standalone product that is going to benefit the bottom lines of major companies.
Microsoft will continue to make its money selling an operating system and business productivity software. The social features within that software don’t produce the profit. IBM will continue to be a leading technology company. You can be sure that any social applications it develops aren’t going to drive its stock price.
You state that cars, phones and homes will be “getting social.” While I think this is meaningless (I don’t think the average consumer cares about having a social car, for instance), you still fail to address the business implications of this. And there are very few.
A gaming console is bought because it offers a compelling entertainment package. The profit is in the actual console and the games, not one or two of the features in them. A car is bought because it gets a person from Point A to Point B (and if you didn’t notice, not a whole lot of them are selling these days). I have no idea what a social home looks like. Most homes are social (i.e. in most, multiple individuals who interact with each other live in them).
As for using Facebook, Digg and Twitter as the poster children of Web 2.0, I used them simply because they have been the poster children of Web 2.0. From VCs to reporters, these are three of the companies that have been most associated with Web 2.0. If you don’t like that, perhaps you should have told your VCs and reporters not to hold them up as poster children.
Pandora is a fun service. So what? Prosper isn’t going to drive banks out of business (they’re capable of doing that to themselves thank you very much). And YCombinator isn’t a technology – it’s an investment firm that provides funding in bite-sized chunks. As VC dries up and M&A becomes more conservative, investing $15,000 in “startups” that build features doesn’t look like the most appealing allocation of capital.
Obviously, companies that produce cash flow will outpace companies that don’t generate revenue. And if you’ve ever worked outside of Web 2.0 (and outside of the technology space), you’d know that the real cash isn’t in Web 2.0.
My point is that Web 2.0 is about real business. I have worked in the Financial, Medical and very enterprise worlds (not as much fun as the social web).
My point is that real business is not about being sexy or pop culture. MySpace, Facebook, Google and Yahoo are working on cross pollination and cross engagement by making data more available, it creates a greater opportunity to share and remix data which fuels greater overall engagement and attachment. Users over the next 20 years will probably have multiple social identities, and segment them based on purpose and networks. I don’t think people will submit to a single graph, which is why OpenSocial, OpenID, and DiSo are so important.
I can not share specific MySpace strategies, but I can tell you that we don’t have Peter Thiel telling bloggers that our company has a $15 billion dollar evaluation because MS was willing to pay $250 million on an advertising contract (even at the rate that MySpace is producing revenue they are still not worth $15 billion according to 10x revenue) Google bought a contract years ago under similar terms, but without the PR play of getting 1.6% in a company. I personally think that was Facebook’s board looking for a quick exit, and it blew up in their face. Court documents have shown that Facebook’s own employee’s don’t even feel that its fair. Facebook will have to find a way to IPO now, which should be a 5 year journey from today if thats true. (3 years to build a business plan, and 2 to plan the IPO) MySpace does not have to worry about any of that, we can just build stuff.
Facebook’s current primary win over MySpace was two fold. They had a cleaner more corporate friendly web page that made it easier web 2.0 novices to navigate and ramp up on how to use the site. Where MySpace was grittier and more WWW or anarchist. That anarchy has brought about problems like social virus, mistrust and other issues, but its also blossomed some big exits for other startups like Photobucket, and YouTube; while Facebook has yet to have large partner or affiliate exits. On the flip side MySpace continues to upgrade its user experience with features like Profile 2.0, OpenSocial and Now MySpaceID. We will be able to out develop Facebook at some time in the future, because we will have the cash to do it.
The other part of Facebook’s success was how it moved on from being a Classmates.com clone and broke out in to the mass market with an Ivy League pedigree. MySpace has a stigma of being for the young, and our users don’t map to their real life identity. Where as a Facebook user connects to their real life identity. So Facebook and Linkedin users will have greater care with trying out stuff, while MySpace users will have more spendable cash, and less conservative in what they experiment with. I don’t know where Facebook, and Linkedin are going to go in the long run, but my bet is ones business identity and trust will be better established with Linkedin, and I love xobni Linkedin support, and I never see MySpace going their. I do however see myspace to be more like the fashion, tv, automotive and music industry in trying to constant evolve and sell the same thing in some shinier package.
Facebook’s weird spot between the profession and playful worlds of Linkedin and MySpace will have to find some nitch that users are willing to spend money on. So I know that Linkedin has an Identity, a brand and a value to contribute. I also know that MySpace has a name, value and identity; MySpace can earn a place in the world selling content, publishing and digital expression.
I honestly think that FB thinks its endgame is to compete with Google, and we know what 8 years of that did to Yahoo, but maybe they have something up their sleeves.
I recently took a job at MySpace and put my startup on hold because I have great faith in this company.
What does fun have to do with it?
If you think Web 2.0 is about business, I’d suggest you look at two companies:
Renaissance – http://www.rentec.com/
Koch Industries – http://www.kochind.com/
Renaissance is an employee-owned quant hedge fund with over $30 billion under management. From 1989 through 2006, it returned over 38% annualized net of fees. Its other funds have had equally spectacular performance. I understand some of its funds are down in 2008 but not when you’ve made 30%+ for the past 2 decades, you can afford to lose 8% in a year.
Koch Industries is an oil and chemicals process company (amongst other things) and with over $100 billion in annual revenues, is one of the largest private companies in the world. Two brothers own the majority of the company.
What’s my point? In the overall scheme of things, Web 2.0 means very little. Its revenues are a rounding error. More money is moved in the financial markets and industry on a daily basis than Web 2.0, social network and social media will produce. Ever.
None of this is to say that there haven’t been a handful of individuals who got rich selling their Web 2.0 startups or that if you aren’t going to be the biggest you should go home. But let’s not fool ourselves – on a global scale, Web 2.0 has no economic impact whatsoever.
Consider that a small group of Somali pirates is, as I write this, counting probably upwards of $10 million in ransom money that was just paid for the return of a Saudi oil supertanker. Not bad for a limited amount of work. They’re not alone.
It’s a big world out there and anyone who believes that Web 2.0 and the consumer Internet is at the center of it is deluding themselves.
Putting your faith in anyone other than yourself is foolish in my opinion. MySpace isn’t going to die tomorrow but you should know that the company you work for anticipated revenues closer to $1 billion in 2008 and managed to pull in only ~$600 million – quite a miss.
Fortune Magazine: Web 2.0 is so over. Welcome to Web 3.0