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Thursday, February 15, 2007

The Myth Of Web 2.0 Business Model

Reports suggest that last year, more than 1,500 Web 2.0 companies were started in Silicon Valley. Gilman of Alsop Louie acknowledges seeing a lot of Web 2.0 pitches from young entrepreneurs. The basic pitch: for an investment of $2 to $5 million, they can build a company that Google, Yahoo or Microsoft will buy. And, in under two years, we can get 5-10 times our money back. How could you not like that?!
Gilman says that his firm does not see it that way and adds that they always decline to participate in deals like that. He adds

We think this is a kind of disease, often caught by these youngsters in business school. They are looking to cash in on Web 2.0 fever and flip their companies quickly for a nice tidy sum.These entrepreneurs confuse a feature for a company. Often these ideas depend on a platform controlled by the large company that they want to sell their company to. But they can’t get traction without permission from the large company. Examples include on-deck mobile phone features, new enhancement for a CRM service, or a cool feature for search engines. When someone else controls the platform, someone else controls the market — and the exit.

Interesting indeed. I agree with Gilman that the business model of several firms is not promising. As I wrote almost several months back, Web 2.0 is overdue for a reality check. As I wrote here, I am not so unduly optimistic about the Web 2.0 movement – I had been calling for a reality check for some time. But the enthusiasm shown in building this movement is indeed amazing and some of applications show promise of success. I do know that this web 2.0 is managing to attract a new bunch of entrepreneurs who are generally well regarded for their capabilities and enterprise. Sure the list in the Web 2.0 hall of shame will be longer than the Web 2.0 hall of fame, but still the movement needs some positive consideration. As I wrote earlier, As I see it with mashups transcending known frontiers, Web 2.0’s impact shall be felt more with the emergence of platforms for the development of rich Internet applications and services.

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