Venture Capital Becoming Irrelevant to the Web?

Oct 30th

I recently got my first venture capital investment request for this blog, which, of course, I turned down. Nothing wrong with VC, of course, other than it isn't a good fit for niche publishing. I generally hate meta blogging stuff, but these 3 quotes are generally all saying the same thing from slightly different angles, which is quite important when you consider the backgrounds of the different sources.

From a VC blog: The Economy of Abundance

The Economy of Abundance allows business owners to defer choices to the end users. What better way to find out what consumers want than to give them everything and see what they actually buy. That is the paradigm of abundance. Why get your news programmed by CNN.com when you can have your news bubble up from the collective wisdom of end users at Newsvine or Reddit? Why get your television programmed by CBS when you can leverage the collective wisdom of the web to find great shows like Lonelygirl15 or Ask a Ninja? No longer will the success or failure of content be dictated solely by the Economy of Scarcity (e.g. Walmart). Rather, it will be dictated by the will of the consumers, as empowered by the Economy of Abundance.

From an entrepreneur who grew a huge business without funding: My Vision of where the web is going.

I think that VC’s will start to wake up and realize that Ajax is a feature and not a product, at the same time how are 100-1000 or so VC funded companies going to compete with a couple of hundred thousand webmasters who have created sites wanting a piece of the action? Many of these webmasters would be perfectly happy with $100/month. But if even if 1 in a 1000 of those adsense driven sites is very successful your entire industry could be screwed. Just look at online dating.

From the owner of a leading tech publishing company: Search Startups Are Dead, Long Live Search Startups

In my talks on Web 2.0, I always end with the point that "a platform beats an application every time." We're entering the platform phase of Web 2.0, in which first generation applications are going to turn into platforms, followed by a stage in which the leaders use that platform strength to outperform their application rivals, eventually closing them out of the market. And that platform is not enforced by control over proprietary APIs, as it was in the Windows era, but by the operational infrastructure, and perhaps even more importantly, by the massive databases (with network effects creating increasing returns for the database leaders) that are at the heart of Web 2.0 platforms.

Platforms like Amazon's S3, Google AdSense, and Google's Custom Search Engine allow passionate people to keep costs low, automate business models, and fund the growth of accidental business models.

As...

the need for venture capital goes down daily for those who can create good passion based ideas. You are not going to build a Google without some funding, but as long as you consider your cost structure from the start you do not need to try to act like Google.

Each additional passion driven amature website makes search more relevant and cuts the publishing market into more pieces. Traditional media companies had to rely on their region based monopoly market position to have a large profit margin, but given the distributed nature of the web is the traditional business financing structure going to even remain relevant in many markets?

Published: October 30, 2006

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Comments

Blake P
October 31, 2006 - 3:40am

I believe in VC money when it is critical to the business and its development. I do not believe in it as an exit strategy.
If the nature of a business is centered around large scale processes or high cost equipment, then I can understand the need for outside funding. However, when the business is successfully growing without a lot of overhead and can be managed by a few people that are satisfied with its success, then VC money becomes a problem instead of a solution.

October 30, 2006 - 1:49pm

And then you add the multiplying effect of ready access to the brainpower of the emerging world...

October 30, 2006 - 7:17pm

As much as I hate to say it, but Vulture...err...Venture Capitalists will always be a key part of many web businesses simply because a large portion of the people who want to build these ideas into real businesses have no idea how to really do that.

For example, Google for a long time had no idea how to effectively monetize their own search engine. They didn't want to put up ugly banner ads so they tried to sell their search appliance and it never took off on any kind of real scale. They got lucky and other companies figured out the whole PPC ads thing and Google used that concept to drive monetization of their service, but if they didn't have VC funding to keep them afloat, they would have sold their search engine to Yahoo and Google would have been a blip in internet history.

There will always be some people who have enough business sense and web experience to make their ideas profitable without having VC's involved, but as long as there are tech nerds with cool ideas and no business sense, VC's will drive a lot of the web growth.

October 30, 2006 - 8:23pm

The reason I find VC so important is that many of us are developing these new ideas in our "spare time", with no clear idea or way to cut over and focus 100% of our time and energy on those efforts. This is primarily due to lack of funding - we are trapped behind our daily jobs trying to find ways to get our entrepreneurial ideas out there.

I for one have a couple of ideas similar to others out there such as Yelp (which got millions in VC from what I understand) - social platforms meant to make it easier for the end user to find what it is they are looking for. However, I can't compete since I can't focus my efforts 100% on my solution. If I had an investor, I wouldn't be sitting behind a desk wearing the hat of a DBA, but rather that of a Founder and CEO ;-)

Had Google not gotten the VC funding they got, those guys would be still talented, but they would be talented Engineers making $100K a year rather than the billions they are now worth. They were able to focus due to the financial backing they received.

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