

Bubble 2.0 - mqt
http://mattmaroon.com/?p=394

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rtf
The internet is built on free-or-nearly-free operation. That's the beauty of
it and I don't think Web 2.0 is likely to fall apart any time soon because of
it. As the author says, the VC-funded "get big fast" sites will face some
major challenges going forward, since the market has proven itself transient
and eager to move on when things take a wrong turn(the growth of news.yc is
attributable mostly to refugees of other sites moving in), but those companies
are really a sideshow to the main event, which is happening in little fits and
starts and niches.

I feel that the real stars are usually operating fairly quietly, building on a
primarily-open model rather than a walled garden, and creating strong
businesses in a highly traditional fashion: by being the best around. (cue the
Joe Esposio song)

You can still build a stable foundation on an open model if your company holds
the expertise in the technology; your immediate competition is likely to be
arrogant and compete in the sprint for the walled garden, rather than the
marathon for the open model. (other companies working towards an open model
are collaborators toward a standard, but competitors in services. Hardly an
unusual situation.)

If the competition gets a lot of momentum in an inelastic product(for example,
operating systems or instant messaging), that can kill you early on, but over
the long term the most-open player usually becomes disruptive and causes the
marketplace to expand with a new set of services. That is my observation of
most such situations in technology.

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bayareaguy
_Try to explain to someone in a bar (outside of San Francisco) or at your
family reunion that there’s an operating system that’s better than Windows for
many purposes, and that it’s made largely by volunteers who donate their time
to the project, largely for nothing more than the pleasure of doing so._

Whether or not that would go over in a bar would depend on the kind of bar it
is, but you'll get a pretty obvious answer if you ask the people at a church
how it could be possible that there’s an organization that’s better than a
corporation for many purposes, and that it’s made largely by volunteers who
donate their time largely for nothing more than the pleasure of doing so.

~~~
Tichy
I thought they do it to get to heaven...

~~~
jimbokun
That is certainly not mainline Christian theology. Although it might be the
view of many sitting in pews who have not seriously contemplated their faith.

Googling "faith works" will get you far more than you care to know about the
topic.

~~~
Tichy
Nevertheless, a short summary would be appreciated, as I wasn't planning on
becoming a specialist on faith workers. Therefore I don't feel very inclined
to invest the research hours - especially as the first Yahoo search results
were not very instructive.

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hooande
There aren't nearly as many high profile startups that depend entirely on
advertising for revenue as people seem to think.

Many startups that appear to have no revenue model make money in ways that
aren't obvious to consumers. How does del.icio.us make money? By selling
marketing data compiled from tagged urls. Flickr didn't start with a clear
revenue model, but they can pay most of their bills from the ~5% of users who
have a paid premium account. Even craigslist, the paragon of free services,
makes a significant amount of money by charging for job listings in a few
select markets.

Matt makes some excellent points, and I believe him that the future is
probably going to be dominated by smaller companies with low profit margins as
opposed to venture backed behemoths. But it doesn't change the fact that it's
difficult to NOT make money with a "wildly popular" product.

If you have a growing website with hundreds of thousands of happy users, you
will find a way to make money. I run a website that is mildly popular on
occasion and believe me, we get emails. Every few weeks someone will come to
us and suggest ways that we can make more money. The more popular the website,
the more opportunities you'll find to make money on it. I don't think that
Mint or YouTube will close their doors any time soon. There are just too many
ways in which they could build significant revenue. Right now their biggest
problem is choosing and implementing the right one.

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webwright
"How does del.icio.us make money? By selling marketing data compiled from
tagged urls." Really? Do you have a source for this info? I'm not saying the
data isn't valuable, I just can't see where they offer this.

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aston
The obvious question being, has Matt, as a gambling type, figured out a way to
place a wager on the bursting side of the bubble? Basically, like a short on
Web 2.0.

If so, I might want in. You know, to hedge my bets...

~~~
mattmaroon
That's a tough one. It's hard with none of it being publicly traded. To my
knowledge none of the betting markets have contracts based on comscore data or
the like, though that might be a great startup idea.

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axod
"But, as far as for profit-websites (which have not-insignificant expenses)
are concerned,"

Hosting is pretty darn cheap these days... If you keep your expenses tight,
the chances of having to shut down are pretty much 0, and the chances of
turning a profit are pretty high.

I also think the chances of youtube _not_ being around are pretty amazingly
slim. Even if it costs a ton to run, it's a strategic long term thing.

~~~
webwright
"...and the chances of turning a profit are pretty high."

Really? How big is your team? The general easy-math burn rate number for a
software engineer is $200k/yr...

So say you're a startup with 3 founders who'd like to (eventually) get paid
market value. How many page views do you need for $300-600k year? Or
subscriptions?

Starting a company is getting easier. Turning a profit is still damn hard.

~~~
run4yourlives
Your point is sound but 200k/yr is a little extreme. More like $100K, all in.
(Salary + options + benefits)

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Tichy
Digital goods are not the same as physical goods. Too bad if Mint and Quicken
lose out - there will always be free alternatives, so it is not really that
big a loss for society.

There are also countless bands who make music and never see a dime, as well as
countless bloggers who blog for free. Not everything is going to die without
money.

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volida
its funny you mention youtube all the time and the article is about a bubble
and you dont give even one example of the web apps you imply their business is
a bubble.

The problem is doing something that people want, and not about temporary
traction to a site, that can be converted into eyeballs for ads.

By the way linux is coded largely by unitesity students or people who work at
large corporatins like nokia so your argument that its coded by people who
code for free is actually based on an illusion many others have too.

~~~
ssharp
The entire "build something people want" mentality is flawed. If I could raise
enough money, I could build cars and give them away for free. It's something
people want and I would quickly own the market. Sure, the low overhead of the
web makes giving your service away for free more realistic but it doesn't make
the business model any more valid given the inability for a lot of well-funded
startups to become profitable.

It's not that difficult to monetize traffic but it is very difficult to
monetize traffic to the levels that would justify the current web 2.0
valuations. Maybe everyone is thinking that one day soon, we're going to see a
revolution in advertising that will rain down on website owners. I don't see
it happening.

This blog post was dead on.

~~~
ConradHex
The car analogy isn't so great. Bandwidth is cheap and getting cheaper all the
time. It's entirely possible to have a profitable website if even 1% of the
visitors are paying customers.

~~~
ssharp
There is a big difference between being profitable and being worthy of huge
valuations (and eventually delivering on them).

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edw519
And please don't forget about the next huge market for web apps: the
enterprise. For every consumer using a Web 2.0 site, there are a hundred at
work in their cubicles. But their employers will never use ad supported apps
for 2 reasons: they don't want their employees reading ads on company time and
they'd rather pay someone to hold responsible. These are fiduciary issues that
all the ads in the world cannot overcome.

~~~
falsestprophet
"fiduciary issues"?

Does that word mean something in business speak besides the normal definitions
(<http://dictionary.reference.com/browse/fiduciary>)?

I usually can pick up on business speak, but I don't see what you mean now.

In any event, my favorite business-speak word is "rationalizing" used a
euphemism for mass layoffs.

~~~
edw519
Sorry. All I meant was that management has a responsibility to ownership.
Having employees looking at ads all day long or having no one to call when
your free software breaks are clear examples of violating that responsibility.

Consumers, with no such responsibility, use all the ad supported apps they
want.

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rokhayakebe
I am not sure how Matt's startup is doing but I know his blog is gaining more
traction and I can see it rise to a healthy and dedicated audience within the
next 12 months. Matt may be that one guy who makes a million in profit from
his blog.

