Thursday, July 06, 2006

Success/Failure Web 2.0 Style

Ben Barren has an interesting post on New Web Success vs New Web Failure. Hip dude that he is, he's using the "New Web" term to encompass the old "Web 2.0" world. The basic idea is that whilst things are easier (i.e. cheaper) to start nowadays, the payoff is also less, initial investors don't get a big bang IPO.
There may well end up being many more “lifestyle” businesses than billion dollar IPO’s, but hopefully there will be less failures, and a less savage bust next time around, as overall expectations are better managed.
I think a lot of the Web 2.0 entrepreneurs are looking to the Freemium business model, getting busy implementing the free level, and hoping that they'll work out the premium level's business case before they go broke.

There is some value in that, after all many of these businesses are breaking new ground, and there is no guarantee that the original idea ('hey, let's do an online linking game'), will match the end result when the mob gets a hold of it ('a collection of favorites' a la del.icio.us). For people wondering what is the attraction of this model, David Beisel says:
The answer is that they separate the initial delivery of value to the customer away from the ultimate monetary payment corresponding to that value. This time lag minimizes the risk involved for the customer, thus prompting increased usage.
And the Web 2.0 mantra is that the more users you have, the more likely your business will succeed.

It does ignore the fact that a user does NOT = a paying customer, however they are certainly potential customers (prospects), or at least people who could recommend the service to potential customers (referrers/fans). I suspect that a lot of the business successes and failures we will see over the next few years will be due to a basic failure to convert prospects to customers. Funnily enough, that is Sales 101 ... and is the very essence of an old web business.

One very real barrier to the Freemium model's paid level is that the business world still doesn't get Web 2.0. There are slow signs that they are using hosted solutions, looking at RSS, etc., but I suspect that the real paradigm shift will only come as staff bring their personal favorite Web 2.0 tools into the workplace and then demand an enterprise version of it (probably for improved security, reliability and secrecy). Until that changes, you are looking at convincing consumers to buy your premium level, or small businesses. Both are highly competitive areas for Web 2.0, and both tend to have very fickle customers that are as likely to cancel a service as quickly as they take it up. The answer I'm afraid is that Web 2.0 must break into the enterprise market (as Google Maps is trying to), I wonder who will do that first?

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