It comes as no surprise that over the last few weeks a host of articles and blog posts have pronounced Web 2.0 dead or near-dead. As people come to grips with the fall of seemingly infallible institutions and the ensuing erratic behavior of the financial markets, they start to wonder what exactly all this means for them and their businesses. This time it was the Web 2.0 crowd’s turn to look deep inside itself and reflect on the bleak prospects that the industry is facing in the coming years.
Since a lot has been said on the topic by all kinds of well-informed people, in this post we’ll resort to summarizing their opinions, ideas, and speculations. In Part I, we’ll review the apocalyptic projections of the pundits regarding the fall of Web 2.0 and tease out the reasons behind it. In Part II, which will appear in a few days, we’ll take a more positive note and look at a few bright spots in the otherwise dismal Web 2.0 landscape. So, let’s get going.
Part I: The Dot.Com Bust 2.0
It all started on September 27, when Jason Calacanis of Mahalo (a Web directory) circulated an essay to his email list titled “The Startup Depression”. In the essay, he predicted that as many as 80% of the currently existing VC-funded start-ups “will shut-down or go on life-support…within the next 18 months”. This was not exactly what people wanted to hear. Most were contempt with the “concerned but upbeat” attitude that ruled the latest Web 2.0 Expo in New York, but this…
More bad news followed shortly. On October 7th, Ron Conway, a prominent Silicon Valley investor, sent an email to his portfolio of start-ups warning them to expect lean times ahead and giving advice on how to weather the storm. That same week, Sequoia Capital held a meeting with its portfolio companies where, reportedly, it delivered a presentation titled“R.I.P. Good Times”. Similarly to Conway’s email, Sequoia’s message was simple – the VC funding will dry up in the nearest future. Web start-ups need to dramatically cut down their burn rate and look for additional funding sources wherever they can.
The gloom started to settle in. Michael Arrington of Techcrunch proclaimed “an ignoble but much needed end to Web 2.0” and provided a must watch video of the Silicon Valley “farewell party”. Over at CNet, a list of “endangered” Web 2.0 companies had been compiled. The list includes, among others, such outfits as Skype, MySpace, Twitter, Pandora, and Second Life (can we at least get a bailout for Twitter??? – thanks to Curtis Ferree for the joke). Jeremia Owyang offered, as usual, an insightful and to-the-point comparison of the dot.com bust of 2000 and the “Web 2.0 doh” of today. And to top it off, Harvard Business School’s Tomas Davenport beat down on the notorious inability of Web 2.0 to deliver tangible business value. “Will we have time for Second Life when we have to take a second job?” he pondered.
This list could be continued but the key point seems clear. The meltdown of the financial markets has led to the tightening of the VC financing, which it turn is about to burst the latest Silicon Valley bubble and kill off a number of potentially cool projects without a clear business model behind them. While this by no means is a cause to cheer, we agree with Rob Hoff of BusinessWeek that the Valey, pehaps, is just entering a new evolutionary cycle. This cycle will once again eliminate the weak species and free up the talent to work on projects with higher probability of survival – read, business success.
To be continued…
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