January 1, 2006

Will Web 2.0 Approaches Build Long-Term Businesses?

Posted in Innovation, management at 1:52 pm by scottmaxwell

So, you come up with this great Web 2.0 approach:

  • You Build a web-based service that offers something new and interesting to your web-based audience
  • At the right point, you will figure out your economic model, but you can always monetize your traffic with advertising (you are hoping for higher level subscription services)
  • You work hard to build such unique features that you become the purple cow of your product market
  • Users start arriving
  • More users arrive
  • More and more and more users arrive
  • At this point you need to take on some funding to build out your data center
  • Vijay, the hungry VC, is happy to fund you, as you are showing incredible user growth
  • With the funding, you offer even better services, including a shiny new API (to promote mashups and unique user interfaces) and offer enlarged storage (storage is cheap, and your users will “stick” better)
  • More and more and more users come
  • You turn on your advertising, and it works great…you become profitable within a week!

Everything is going unbelievably well, right?

Then, someone comes up with a killer mashup or rich client that starts steering your users to a different interface without the ability for you to monetize traffic through advertising. In fact, it completely changes the user model. You now have the costs, but the revenue is declining.

Could this scenario happen to your company? Check out the Gmail Drive

Now What?



  1. Rogel said,

    How long, do you think, it will take Google to block this? or Maybe they can turn it to alternative business somehow?

  2. scottmaxwell said,

    Good question. I would think that the next step is for Google to block it as well (I would if I were them). I agree that the other possible approach is to morph the business model somehow. That said, it would be wise for the innovative young companies to prepare for these types of issues and to try to make sure that they are building a long-term competitive advantage (to the extent they are trying to build a long-term business).

  3. William Volk said,

    Funny thing is, I get criticized for softpedaling the advertising component of our mobile plan, and focusing on m-commerce. I know everyone is in love with ad-revenue, but this scenerio is being repeated.

  4. scottmaxwell said,

    Good point on commerce being more difficult to replicate.

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