Leverage - Why Most Web2.0 Companies Fail

May 2nd

If you improve the value of another service based largely on their infrastructure or data, it usually doesn't take much for them to roll your offering into their well known brand, and kill your market position. Alexaholic was praised by Alexa for being innovative, right up until they sued when the creator failed to sell them the domain name. It took a year for Alexa to clone Alexaholic.

AuctionAds created an easy way to syndicate auction listings. Frank Schillng mentioned eBay to Go offers a similar interactive service. eBay to Go came out within months of the AuctionAds launch.

I helped launch ReviewMe. ReviewMe extended its model to include allowing advertisers to create a marketplace of review requests that bloggers can chose to accept. Text Link Ads also recently announced post level text links as a product under their flagship TLA brand, which is sold using a more profitable business model (since it has recurring ad costs). Patrick Gavin ensured I got a good deal, but without his dedication to making ReviewMe a success it could have just become a test platform for TLA that didn't make much money.

Tim O'Reilly wrote data is the new Intel inside. If your success is based entirely on another network's reach / brand / information / platform it is hard to have enough of a core asset to be profitable or a purchase target. It is hard to stay ahead of the value curve since the core brand has inertia and fatter margins. The reason most Web2.0 companies will fail is that they are creating entire companies based around a feature to another product, while having no market leverage.

Published: May 2, 2007

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Comments

monstersbaby
May 3, 2007 - 9:51pm

i agree. whichever webx.y or z technology, at the end most of the business models either help customers to easier find products (search, ebay, etc.) - products can be services or people, too - or they help to better chose a product once they found them (transparency, recommendations, etc.) or purchase them cheaper incl. for free (direct sales, exchanges, etc.) or get a better service during and after sales (amazon, etc.).
established brand/trust and most of the time reach favor established companies but web2.0 gives the power to customers. but as long as there are just few of them ready to use it, they will not provide a critical mass, so sometimes timing matters, too.
finally, i think that internet creates - apart from small niches - world wide oligopolies in any area. the good thing, though, is that they keep buying the complementing sites with additional features to the existing offering ;-)

Christopher Rees
May 4, 2007 - 3:43am

I agree as well.. I think "web 2.0" is a nice fresh spin on web design, and usability certainly increases with regard to bells and whistles. However, after awhile, that becomes commonplace and without something truly innovative, users dry up and move on.

Simply posting for the sake of posting will forever satisfy some as they like to see their name in lights so to speak, but I believe it won't be long before the landscape gets diluted to the point where it's really hard to stand out.

I always use the analogy of great rock bands of the past. They were great and have such longevity because they were so unique and ahead of the curve. In todays world with so many good bands out there (arguably a matter of opinion) and so many copy cats who do it just a little better it's hard to keep people's interest long enough to develop longevity.

Information is coming at us so quickly and from so many angles in today's world, people's attention spans have gotten REALLY short. Brand loyalty is increasingly difficult to develop and maintain because there are so many choices.

So getting back to the great bands of yesterday, most would hardly make a ripple in the water if they launched today. Too many choices and too many things competing for people's limited attention spans. Without something to constantly remind them "here I am", they find something shiny and new to play with, and they move on.

So long story short, I think it's imperative to jump out ahead of the curve, innovate, stake a claim and let the others flatter you by imitation as their light quietly burns out. It certainly can be done, I just think the game is getting tighter and it's harder to be that shining star for the playing field is getting bigger, and sometimes brighter.

Great job on the site by the way Aaron, excellent look and feel, very consistent. One of the very few blogs I actually want to read each day... :) Keep up the great work!!

Regards,

Christopher Rees
President,
Palaestra Training
www.palaestratraining.com
1-800-324-0946

Jason Grant
May 13, 2007 - 3:50am

Oh how I agree.

This is spot on observation Aaron.

The good old business rules that have worked well for over 100 years now still apply in the Web 2.0 sphere.

Business is still business and some of these social 'gurus' are having a proper laugh when they are trying to say that 'piggy backing' onto a Web 2.0 service is somehow a way to success in the future.

Nonsense.

There is still nothing like owning your own brand, content, concepts and ideas.

Regards.

Anuj Seth
May 2, 2007 - 12:24pm

Aaron,

I agree to a certain extent with what you have to say.

Many Web2.0 companies have their entire business model around just 1 feature which they package and productize for others to use. In the short term this might be a good revenue model for them but to be able to sustain themselves they need to look beyond.

Their model needs to ensure that they have a complete portfolio of next generation features available to complement or replace their existing feature set.

No company can survive in today's world if they don't find good ways to evolve themselves of a period of time which is faster than other companies.

- Anuj Seth
Online Presence Blog - http://OnlinePresence.BlogSailor.com/

PS: Your SEO Book is awesome. Just bought myself a copy of it.

bookworm-seo
May 2, 2007 - 6:41pm

I think a lot of them are failing because web 2.0 is the new bubble. Make a nice round-cornered site that uses ajax and bright colours, while mashing up something, and that's supposed to be a business model. The catch is that like web 1.0's busts, there's no revenue model (ok, sometimes adsense is in there, but how reliable is that, and how much room for growth does it provide?). Web 2.0 failures are the same as web 1.0 failures: webmasters building companies with no clue that business means MAKING MONEY.

David
May 2, 2007 - 7:54pm

Agree - but are you saying that AuctionAds will have a hard time competing against eBay?

Matt Larson
May 2, 2007 - 8:23pm

David,

I like Shoe & all, but "Ebay to go" will smoke AuctionAds unless Ebay really drops the ball - Ebay's payout should always be higher than AuctionAds since they are further up the revenue stream.

ValueInvestingN...
May 3, 2007 - 3:57am

Another reason why most web2.0 companies don't last is because they fail to reward their users for the content they generate. Getting user generated content is great, but you have to give back value to the users. If you don't, they will move on to the next new site.

December 5, 2007 - 7:04am

Definition of Meltdown - 1. a state of complete network overload that grinds all traffic to a halt 2. a disaster comparable to a nuclear meltdown

Considering content and community are king, I don't think a Web 2.0 meltdown is on the horizon. It’s no secret that major players like Google, News Corp, Yahoo and MSN are steadily acquiring various Web 2.0 brands for very large sums of money. Predicting acquisition trends among these companies is not too difficult of a task for any web savy eMarketer.

Although I just recently started playing around with some different Web 2.0 brands, I quickly witnessed unlimited potential for their continued long-term success.

Most current leading Web 2.0 brands fall into what I refer to as, general categories which are comprised of countless sub-categories. First, Web 2.0 brands introduced "categories". Next, Web 2.0 brands will introduce "sub-categories", which will allow Web 2.0 brands to stabilize their already firm positioning and ultimately become authoritative figures on the Internet.

It's no secret that "keyword phrases" carry much better CTRs (click-thru-ratios) and ROIs
(return-on-investments) than "genearl keywords" do - when engaging in a PPC (pay-per-click) marketing campaign. For example, on the page I am originally posted this article on I notice the page's title tag read "Web 2.0 Bubble Trouble?". This title tag is much more suitable for this page's topic, as opposed to something more general like, "Web 2.0".

The same applies to Web 2.0 brands as the diversify their portfolios introducing sub-categories of their already existing brand's general or niche category. Google, News Corp, Yahoo and MSN are strategically acquiring emerging Web 2.0 brands for a reason. At the end of the day, we all know what that reason is - to make lots of money!

My conclusion:

As companies like, Google, News Corp, Yahoo and MSN pay BIG dollars to acquire Web 2.0 brands they are doing so for a few reasons. First they are looking for creative ways to push new, in-house products and services to targeted consumers and businesses alike. I would have to argue that Google is leading the pack in this arena.

Next, they are trying to position their companies for rapid long-term growth, each headed in strategically aligned directions. In my opinion, all 3 are great companies and not any one of them is better than the other in regards to their directions. Rest assured that the overall concept, audience, and appeal of any recently acquired or soon to be acquired Web 2.0 brand is a solid reflection of the direction the acquiring company is headed in.

Like it or not Web 2.0 is here to stay!

Joe Meds - a Professional Blogger Driven by Creativity

Joe currently blogs for several large clients with http://www.rxpop.com being the most notable. Joe enjoys blogging for http://www.rxpop.com and all of this other clients too. If you operate a health or pharmacy brand on the Internet and are looking for a blogger give me a shout!

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