Thursday and Friday I was invited to attend the “Understanding the Networked Digital Industry” workshop hosted by USC’s Institute for Communication Technology Management. The workshop had a lot of great insight about what’s happening in telecom, Internet and other information industries. I don’t have time to cover all the interesting talks, but did want to write about my own talk.
I joined a panel entitled “Creating New Value Propositions.” When I was asked to speak, I decided to talk about Web 2.0 business models. So my talk was entitled:
Web 2.0 business models:
Did we learn anything from Web 1.0?
The first part summarized the use of the term “Web 2.0,” starting from the definition by Tim O’Reilly back in September 2004. I first summarized the O’Reilly definition, noting examples like Facebook, MySpace (part of News Corp.) and Flickr (part of Yahoo). I then offered my own summary of what defines today’s Web 2.0 companies:
- User generated content (which I tied back to the von Hippel work on user innovation, a new wrinkle for some of the audience)
- Social embeddeness, with self-defined affinity, either for friends or by similarity in self-revealed preferences (e.g. Amazon).
- Integration via APIs, and thus converting websites to platform technologies.
I then summarized the Web 1.0 problems and how they apply to Web 2.0. Effectively, Web 1.0 was commoditized due to low entry barriers (compared to say retailing or radio stations), too many entires, low perceived customer value for commoditized content, and questionable revenue models. Web 2.0 has exactly the same problems.
Sure enough, the FT (in May) and the Merc (last Sunday) printed articles that noticed that the rulers of Web 2.0 have no clothes. Quoting from the FT article by Richard Waters and Chris Nuttall:
Many members of the Web 2.0 generation of internet companies have so far produced little in the way of revenue, despite bringing about some significant changes in online behaviour …Meanwhile, Chris O’Brien on the Merc had a great column last Sunday:
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.
I attended the Facebook developers conference to hear founder and CEO Mark Zuckerberg discuss the future of the social-networking site…How will it turn out? Clearly a Web 2.0 shakeout is coming; this seems like 1999 of the Web 1.0 (i.e. dot-bomb) era, which means that the shakeout should happen the next 2-3 years.
What really struck me, though, was his response to a question during a session with reporters after his keynote: How are you planning to make money from all of these new services? His answer: We'll figure that out later.
I found this observation to be remarkably prescient:
[B]ubbles and consequent shakeouts appear to be a common feature of all technological revolutions. Shakeouts typically mark the point at which an ascendant technology is ready to take its place at center stage. The pretenders are given the bum's rush, the real success stories show their strength, and there begins to be an understanding of what separates one from the other.What makes this even more delicious is that the comment was made back in 2005 — when TIm O’Reilly was explaining what happened with end of the Web 1.0 era and how it would mark the beginning of the Web 2.0 era.
Hopefully before “Web 3.0” is coined, someone will take seriously the problem of inadequate revenue models.