© Madzik


So I admit I haven't been blogging for a loong time. Times have kept me busy and at some time I forgot that I SHOULD blog something.

Nevertheless I recent thought occurred to me and I found it a valuable lesson.

The Economist recently glamored over the Web 2.0 years and finished its conclusion with the bitter lack of a business model that has prevailed. True there is more than advertising - there are subscriptions services and 'digital roses' but there is no big underlying trend generating billions of revenue. In fact all startups summed up together excluding the TOP 15 in the Web 2.0 space started in the last 3 years may have a hard time reaching one billion in revenue per year (although much has been invested).

That's a shame because much new and helpful technology has come into our lifes during the last years (and will come into in the next years). Unfortunately few of these innovation will makes us change our spending habits.

Just think some years back and nobody had cell phones - now the average bill for each cell phone customer is around $30 - that is a lot of revenue when you sum that up. But is there a considerable new spending pattern for the Internet? There are some subscriber sites but on average (most suers get a free ride anyways) we all may pay the biggest chunk of our 'Internet' charges to our ISP or maybe our 3G providers.

The trouble with (Internet, mobile and web 2.0) startups is that while they can create buzz and create helpful services they mostly need a 'network effect' to even begin to make money. The network effect can be viral or a certain quasi monopoly (like Paypal) but otherwise it will hardly ever make a useful amount of money. Granted the web provides nearly unlimited scalability but few business are lucky enough to make use of that unlimited scalability. Put differently there is usually too little (paying) demand for all whats going on on the Internet.

If you open up a restaurant your scalability is limited (you are full at some point) but you can scope demand rather easily (how many restaurants are there and how many people eat out how often). You don't care if someone in China copies your business model - as an Internet startup it can scare the hell out of you if halfway around the world 3 other companies do the same stuff you do. However most web startups have the luxury to be fully financed for a good amount of time and often try many marketing channels and revenue opportunities before eventually sticking to one (if one at all). You simply can't do that with your own restaurant (but you also need way fewer costumers).

Now don't get me wrong - you need to try these things to figure out what works and what not. Without the big investments into the Internet and Web 2.0 in the last decade we would not have seen the wonderful improvements in productivity at home and at work. However it turned out it;s just not a big business (yet). Most investor are no philanthropist but want to see return on their investments. That seems more difficult now than ever. Even in the boom items few mega exists have occurred that would make good of many startups the flounder.

So what is the future? I guess tech investment will diversify more away from the web into sectors that are known already:

- cloud computing (although recently over hyped, it's long term very viable)

- biotech has yet to show a broad range of success stories

- mobile will remain tricky as long as there is no universal platform and revenue model that works (although the app stores seem to be a great step)

- specialized hardware (like the iphone or iflip) will prosper

- enabling technology to do more things online for companies will continue to see good chances but its not 'enterprise software' as we know it, it will be often consulting and specialized solutions

and to many not yet know 'trends' and areas. I'd give 3 years and we will see the incubators fill up again with new trends that may have a better chance to become a real big business.

Another problem that has arisen is the growth of adware, which has made people much more wary of web 2.0.