Web 2.0 : a perspective

2005-11-21

Richard Moore

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http://www.nytimes.com/2005/11/18/opinion/18battelle.html?emc=eta1


November 18, 2005 
Op-Ed Contributor 

Building a Better Boom 
By JOHN BATTELLE 

Kentfield, Calif. 

IT sure feels like a bubble, doesn't it? Let's tick off
the signs: a red-hot market for Internet stocks (Google,
for example, has more than quadrupled since it went public
in 2004);  fawning articles   celebrating entrepreneurs; a
glut of venture capitalists  elbowing one another to
invest in companies with no plans on how to make money 
past some hand waving about "advertising" and plenty of
vague claims about how their technology will "change the
world."

The Internet is exciting again, and once again folks are
rushing in. In some categories - like search or social
networking, for example -  there are scores of start-ups
vying for pretty much the same market, and it's certain
that, just like last time, most of them will fail.

But regardless of all this déjà vu, we are not in a
bubble. Instead we are witnessing the Web's second coming,
and it's even got a name, "Web 2.0" - although exactly
what that moniker stands for is the topic of  debate in
the technology industry. For most it signifies a new way
of starting and running companies - with less capital,
more focus on the customer and a far more open business
model when it comes to working with others. Archetypal Web
2.0 companies include Flickr, a photo sharing site;
Bloglines, a blog reading service; and MySpace, a music
and social networking site.

These sites all came into their own in the past two years,
and all of them have been sold for handsome sums to major
media or technology companies. What do they have in common
that proves that this time, we're not heading for a fall?

First, this time the Web is ready for the dreams of both
its innovators and its public. The first version of the
Internet - call it Web 1.0 - was long on vision but short
on execution and audience. The technology was rudimentary,
precious few had broadband connections and starting a
business that "scaled" - one that  could deal with success
and the traffic  it brought - was extremely expensive.

The Web has since become a platform, and building new
businesses on that platform is no longer a
multimillion-dollar proposition. Most new Web businesses
nowadays are started with less than half a million
dollars, and it's rare to find one that wants to use money
from an initial public offering to get to profitability.

The reason? Start-ups are leveraging nearly a decade's
worth of work on technologies that are now not only
proven, but also free, or very nearly so. Open-source
software can now do nearly everything that Oracle, I.B.M.
and Microsoft specialized in back in the 90's. And the
cost of computing and bandwidth? You can now lease a
platform that can handle millions of customers for less
than $500 a month. In the 90's, such a platform would have
run tens of thousands of dollars or more a month.

I should know. It cost me millions to build my Web 1.0
business's Web site. My current  business is based on
blogging, where the average cost to start a site is about
$100.

Or just ask Joe Kraus, a  founder of the once high-flying
Excite portal. Excite ran through millions in venture
capital, then tens of millions of I.P.O. money, before its
spectacular demise (Mr. Kraus had left before then). His
latest start-up, JotSpot, is built on open-source
software, and cost less than $200,000 to begin.

Mr. Kraus exemplifies the second reason I  believe we are
not in a bubble: this time, the financiers aren't driving.
Instead, the entrepreneurs and geeks  - often one and the
same - are.  The lessons of Web 1.0 are never far from
their minds, and the desire to create something cool that
might foster some good in the world is often equally
paramount with the desire to make money.  The culture of
Web 2.0 is, in fact,  decidedly missionary  -  from the
communitarian ethos of Craigslist to Google's informal
motto, "don't be evil."

Ah, yes, Google. That brings us to the third reason we are
not in a bubble: vastly improved search technologies.
Recall that the demise of Web 1.0 was predicated in large
part on the collapse of the Internet advertising business
-  people were spending millions buying billboard-like ads
that, it turns out, nobody was paying attention to.

But  effective search engines - and what they enabled -
changed all that. Right as the bubble burst, the Internet
became a mainstream medium - a majority of Americans were 
now online. At about the same time, Google turned its
first profit, as did Overture, a similar company now owned
by Yahoo. These two companies made money by reinventing
advertising. Using their services, advertisers  paid only
when people actually clicked on their ads, and it turned
out, millions did just that  - once the ads were matched 
to searches and therefore actually useful.

Search has provided the business models for countless
companies, which use search to find new customers (eBay
and Amazon are two of Google's largest advertisers) or
which run Google or Yahoo's advertising networks on their
own sites (a process called syndication). In fact,
syndication has become the de facto business model of many
 start-ups: if you build a new service that garners a
decent audience, syndication can provide enough  revenue
to give you time to refine your  services and find your 
true business model.

Which leads me to the final reason I believe we are not in
a bubble: the relative lack of public offerings. Most
companies this time around are taking the path of
acquisition, finding homes at large, stable and profitable
companies like Yahoo, Google, News Corporation or Barry
Diller's InterActiveCorp. The era of the hot Net I.P.O. is
over, and good riddance.

So sure, there are too many start-ups, and sure, some
venture capitalists are trying to get in on as many as
they can. In the meantime, far more companies are starting
that just might change the world, or at least interesting
parts of it, and thanks to the lessons of the past, we now
have an ecosystem that may  enable them to make a serious
go of it.

John Battelle,a co-producer of the Web 2.0 conference , is
the author of "The Search: How Google and Its Rivals
Reinvented Business and Transformed Our Culture."

Copyright 2005 The New York Times Company 
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