Everyone seems to want an answer to the question “When will Web 2.0 startups start making money?” The implication is that unless we can answer the question, the “bubble” of Web 2.0 will burst and all of us who believe in this stuff will be revealed as fantasists.
The fact is, it’s incredibly hard to make money as a Web 2.0 startup aimed at consumers.
There are hundreds of these companies, and they all clamor to brief us at Forrester. Each has its own twist on blogs, social networks, ratings, user generated video, or whatever. It’s hard to get people to pay attention to a new tool, and the value of the tool depends on lots of participation — the classic chicken-and-egg problem. Your competitor is always one twist ahead of you. Some of these startups will succeed but the odds are one in a thousand — you need just the right idea, at the right time, with the right push or set of potential customers, and you need to take off with such velocity that you leave the competition in the dust.
So much of the focus is on the consumer area of Web 2.0. That is where the juice is but it is not where the really long term effects will be seen. That comes from enterprise uses. Computer games have had a real influence on our lives but the introduction of the PC into the enterprise is where real change occurred.
Web 2.0 is just beginning to alter business protocols and shifting the paradigms to more decentralized creation of knowledge. Some organizations embrace this and will be the first to reap the rewards of enhanced decision making. There are a host of small companies, this one included, that are working to bring these tools into the enterprise.
The amazing thing is that there are a class of startup companies making good money right now from Web 2.0. They’re not flashy and they don’t grow like mushrooms. But they’ve got all the business they can handle and they are growing. I am talking about companies that serve corporate social application needs. This isn’t the typical Web 2.0 business paradigm, since serving corporate customers means lots of client service, which is people-intensive — it doesn’t lift off miraculously like a pure technology startup. In fact, in many of these companies, the technology itself is positively mundane. But the startups grow because they deliver value for which they can charge a premium and get customer loyalty. The customers of these companies don’t defect when something shiny and new comes along, because they like the service they’re getting.
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