Wednesday, 8 February 2012

Is there any money in Web 2.0?

"Daily voucher company Groupon has reported an unexpected loss.

In its first set of results since listing on Nasdaq stock exchange in November, Groupon reported a net loss of $42.7m (£27.0m), when a small profit had been expected.

The loss for the last three months of 2011 compares with a loss of $378.6m in the same period of 2010."

BBC News - Groupon reports unexpected loss

A year ago the hot world was 'social', from conferences to the hunt for VC social was everywhere. Suddenly young good looking people nothing like Mark Zuckerburg were trying to make a career of social.

It was all like the dot bomb all over again maybe.

Recent filling by Facebook shocked us to see that the giant with almost a billion users earns less than $5.00 per user per year!

If you try to think of the entire social media pie you have to imagine right now Facebook has a large piece of that pie. And yet it only earns about $4,40 per user per year. Foursquare and Twitter along with YouTube will be taking most of what is left of the pie.

What does this mean? It means that maybe there is not much of a pie. Facebook and Twitter had explosive growth because of the massive population with web tool that needed something to do with them, but the fact remains the web seems better at free stuff than pay stuff.

There simply may not be any business online.

But wait, didn't we go through all of this before? Didn't dot coms collapse because of the market pulled out only to have the industry return with even more power.

Well yes, the web came back with Web 2.0, dot coms funded by IPOs collapsed to be replaced by new social firms funded by VC, but still the large sustainable ecosystem is not there. So far the companies to make money off the web are Apple and Google.

But that is not the full story, thousands of smaller companies make more money because of the web, people make more at their jobs because of the web, the web reduces the costs of many firms.

Maybe we have a new kind of economic model coming up. One that has a few massive web companies that take up what little profit can me made, a lot of non-profit projects like Wikipedia and Debian and a huge network of smaller firms that make smaller revenues doing specific work.

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