Michael Dolan Dot Com

Tuesday, May 27th, 2008

Web 2.0 companies fail to deliver revenue – shocking!

I know, it’s a shocking headline, but apparently some critics are coming out of the investment community that has been funding these startups. I know many of you who have spoken to me personally have probably heard my views and written them off as “old school” or not as flashy/exciting. The truth is I do understand the value of “Web 2.0″ and I can see where it makes sense and where it doesn’t. I’ve posted here a few times before that the valuations and business fundamentals were way out of whack and I still to this day know that I’m right.

And now I can point to the Financial Times as another credible source in my favor. For very similar reasons, I think we’ll see many “open source” companies fall into the same pit. Some will make it (although facing challenges), but many will not. I hope Digium does b/c I love the Asterisk product and I’d like to see it gain wider adoption. But there are others that I can guarantee you will not survive more than 12 months.

Fundamental economics wins every time – don’t try to fight it.

http://www.ft.com/cms/s/0/6c968990-2b4c-11dd-a7fc-000077b07658.html?nclick_check=1

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, according to some of the entrepreneurs and financiers behind the movement.

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. Together with the US economic downturn and a shortage of initial public offerings, the failure has damped the mood in internet start-up circles.

“There is going to be a shake-out here in the next year or two” as many Web 2.0 companies disappear, said Roger Lee, a partner at Battery Ventures.

Update: I just saw a new article in my RSS feed over at The Register. What can I say – great minds think alike.