Another sign Web 2.0 has peaked

The day of reckoning for Web 2.0 companies is approaching just as surely as it did for Web 1.0. We appear to be about a decade behind Web 1.0, which would suggest that the crash could start next spring.

Not all Web 2.0 companies will fail, just as not all Web 1.0 companies failed: Amazon and Google seem to be doing just fine, and the eventual Facebook IPO will graduate it into this camp as well.

But if the sign of a top is when everyone is pursuing a trend (or fad), then there’s not much upside left. Or as stockbrokers have long noted, when shoeshine boys are giving stock tips, it’s time to sell.

One sign is that — as with a decade ago — we’ve been subjected to years of hype about how Web 2.0 is the future and taking over the world. For example, this week‘s article that proclaims that future CEOs (unlike today) will be social media geniuses.

But what really got my attention was listening to a description of consulting projects that two accounting firms were pitching to our honors students. One of the firms was nationally known, one is a medium-sized regional player. Both wanted students to study how the accounting firms can use social media in their operations, e.g. for recruiting students.

True, some accounting and consulting firms are real IT opinion leaders: think Andersen Consulting. However, many are filled with bright people whose skills extend more to disentangling tons of tax code red tape than deploying cutting-edge technologies.

So how much more upside is there to Web 2.0? Yes, there is international growth in countries that use cellphones rather than PCs. And there may be some geezers who aren’t on Facebook that may adopt in the future — or perhaps these geezers will never adopt these technologies.

Either way, the adoption rate of Web 2.0 technologies in the US will be slowing down, and the rest of the developed world too. How many new entrants can be supported in a maturing market?

Sorry, Steve

Steve Jobs made a few announcements yesterday, and as usual, probably every man woman and child on the planet has heard the news about new and improved iPods etc. Heck, you can even find a few hundred articles that talk about his decision to ditch the mock turtleneck.

Most of it was the expected better, faster, cheaper. The Nano I bought last month (on a special promo) is now smaller and has a clip. The youngest member of our household is hoping that the iPod Touch will be drop-shipped from the North Pole in late December. (Steve finally admits that the iPT is just an iPhone Lite). The AppleTV is no longer a hackable Unix-based stripped-down Mac, but (if rumors about its use of iPhone OS are to be believed) an iPT without a screen.

However, I think the new iTunes movie policy is crazy: no sales, $1 for renting a TV episode, and $5 for renting a movie. Maybe he’s just greedy or not serious; I don’t know.

Maybe it’s because the studios are fighting him and demanding ridiculous royalties; certainly the decision of CBS and NBC to boycott the effort suggests the studios are not cooperating, although the NBC recalcitrance (even pre-Comcast) is déjà vu all over again.

Movie rentals are a commodity. Right now I rent my movies for $1 from a kiosk at my grocery store. In other cases, I pay $0 to rent movies or TV episodes from the library, or $0 to watch TV episodes on a website.

Meanwhile, Netflix will gladly rent me movies and some downloadable content for $9/month. That includes downloads to a Wii, PS3, Xbox360, iPad or AppleTV.

Why would I want to pay $5 for a single movie rental? If the studios conspire to embargo movies from the discounters for 60 days — and somehow avoid antitrust scrutiny — then it might be possible to charge a premium for hot new releases. Otherwise, it’s hard to see how anyone — save perhaps rich Silicon Valley elites who have more dollars than sense — would pay more than $2-3 for a download that’s available in so many other ways for a heck of a lot cheaper.

iPhone OS everywhere

This week Apple is going to unveil various updated iPod models and probably some other consumer media devices. Around our house, the new iPod Touch is eagerly awaited by someone who is too old to believe in Santa but still thinks he has an account at the Apple Store.

Ryan Kim of the SF Chronicle has a great article summarizing Apple’s shift away from Mac OS X and towards iOS everywhere:

"I think the iOS operating system is so powerful for Apple, it's generating most of their revenues, between the iPod Touch, iPad, iPhone, iTunes and the App Store," said independent mobile analyst Brian Hall. "Clearly, I think Apple realizes that they want to continue down this path."

Some speculate that Macs will eventually run iOS, and Kim quotes Steve Jobs himself:

Steve Jobs has acknowledged the shift, saying the future of Apple is in lighter, non-PC devices, which he likened to cars, comparing computers to old trucks used during the country's agrarian past.

"PCs are going to be like trucks," Jobs said at the D8 conference in June. "They're still going to be around, they're still going to have a lot of value, but they're going to be used by one out of X people."

The article concludes with a quote of Jean-Louis Gasée, the former Apple VP of R&D whose stubbornness (along with John Sculley’s cluelessness) nearly killed the company:

Jean-Louis Gassee, a partner at venture capital firm Allegis Capital and a former Apple executive, said he's doubtful Apple will bring iOS to the Mac because it will add too much complexity, something Apple traditionally avoids. But he said iOS, combined with iTunes, has given the company a system it never had with the Mac.

"It's obvious from Apple's actions they believe in the future of iOS," he said. "They're putting a lot of resources behind it. With iOS and iTunes, Apple has an ecosystem with no equal."

The article is must reading — it’s about as complete a job as you could expect for pre-announcement speculation, and I can’t really add to it.

Eclipse mobility

Ian Skerrett, marketing director for the Eclipse Foundation, stopped by SJSU for coffee this morning to catch up. Ian is in Silicon Valley for tomorrow’s “Eclipse Day at the Googleplex.” (registration closed July 26)

I’ve known Ian since 2004, but haven’t seen him face to face since our honors students studied key success factors for projects in the Eclipse community.

While Ian has stayed in the same job the entire time, Eclipse remains on the move. We talked about how mobile (along with cloud) is the current big thing in software development, and so far Eclipse is doing pretty well.

Eclipse has three of the big four smartphone platforms (five if you count Microsoft): Symbian, BlackBerry and Android. Apple (like Microsoft) has its own tools that for strategic reasons parallel its PC-centric tools.

It also also is used by all five of the traditional Big Five handset developers — Nokia with Symbian and Samsung, LG, Motorola and Sony Ericsson with Android. Motorola distributes its own MotoDev Studio, which includes both a custom package of Android tools and an Eclipse-based IDE for writing Java apps. Even Samsung's proprietary bada smartphone platform uses Eclipse tools.

In response to the increasing focus on mobile, Eclipse has created yet another TLA for yet another project: TMW (Tools for Mobile Web).

All is not sweetness and light. Since Nokia has decided to create its own tools to emphasize QT APIs on top of all its mobile platforms, this means that Nokia is moving away from a shared Eclipse platform towards its own proprietary one (like Apple and Microsoft).

Also, Eclipse is not a silver bullet (or life preserver) for companies with a failed business model or struggling to survive in a commoditized market segment. (Exhibit A: Borland). So there will be a certain amount of turnover inherent in both the composition of the Eclipse community and the sponsor-members who pay the bills to keep the Foundation running.

Still, Eclipse remains the exemplar for a fully open open source community — still comparatively rate, as companies find letting go is hard to do.

Keeping secret the "secret sauce"

When talking about IP, normally tech startups and VCs emphasize the role of patents as a barrier to entry and imitation. This is understandable given that patents block independent invention, as opposed to copyright which failed miserably during the dot-bomb era as dozens of companies re-invented e-commerce and websites.

(Innovation scholars also tend to use patents as a proxy for “innovation” or “innovative output” — mainly because lots of data are available cheap.)

However, there’s more to innovation than just patents. (Tacit knowledge, for one thing.) The “secret sauce” for sustainable competitive advantage will vary based on the industry.

In mature industries, efficiency often comes from process innovations that may not be patentable, but could be trade secrets. It may not be protectable indefinitely if you have your entire strategy visible to your supply chain — as with Dell — but the less you reveal, the longer you can protect it.

On the way home from work tonight, I stopped at TJs, our family’s favorite grocery store. Then I read the interesting profile by Beth Kowitt published in Fortune over the weekend:

Trader Joe's is no ordinary grocery chain. It's an offbeat, fun discovery zone that elevates food shopping from a chore to a cultural experience.
…
The privately held company's sales last year were roughly $8 billion, the same size as Whole Foods' (WFMI, Fortune 500) and bigger than those of Bed Bath & Beyond, No. 314 on the Fortune 500 list.
…
You'd think Trader Joe's would be eager to trumpet its success, but management is obsessively secretive. There are no signs with the company's name or logo at headquarters in Monrovia, about 25 miles east of downtown Los Angeles. Few customers realize the chain is owned by Germany's ultra-private Albrecht family, the people behind the Aldi Nord supermarket empire. (A different branch of the family controls Aldi Süd, parent of the U.S. Aldi grocery chain.) Famous in Germany for not talking to the press, the Albrechts have passed their tightlipped ways on to their U.S. business: Trader Joe's and its CEO, Dan Bane, declined repeated requests to speak to Fortune, and the company has never participated in a major story about its business operations.

The article uses interviews with suppliers, ex-employees and others to summarize its sourcing, pricing and merchandising processes. It captures some of the reasons why our family has preferred TJs to its rivals for nearly 20 years.

Meanwhile, British grocery giant Tesco is failing badly in its efforts to dislodge Trade Joe’s with its Fresh & Easy chain.

Of course, much of this would be impossible if TJs were a publicly traded company. Even if you’re close-lipped like Apple or Google, being public requires a minimal amount of transparency and clarity that even Amazon will someday have to emulate.

For any long-term California resident, a discussion of a homegrown, secretive, privately-held, cult favorite store brings another chain to mind: the In & Out hamburger chain. Unlike TJs, they have a book about them. Also unlike TJs, I think their niche is sustainable indefinitely — in part because the fragmented fast-food restaurant supports niches better than groceries (or department stores), where economies of scope are a crucial factor.

The actual “secret sauce” at In & Out may not be all that secret or valuable, but its unique culture and processes may remain a competitive advantage for as long as it remains family owned, with branch locations directly controlled by the company rather than franchisees.