Tuesday, September 15, 2009

Web 2.0 & Valorizing "Stagesetting"

One of my colleagues, Joel West, from my grad. school days blogged about the problem of monetizing Web 2.0 firms like Twitter.  He summarizes a TechCrunch article succinctly::
  • Many firms are acquired pre-revenue and thus their valuation is made without proof of its revenue model. [emphasis aded]
  • Before a startup has a revenue model, its revenues are anyone’s guess. 
  • Once a firm has revenues, the range of guesses will be much narrower — and often lower than the most optimistic predictions
This reminds me of TiVo.  In the late 1990s, TiVo {a PVR device and service} engaged in what I call "strategic stagesetting," defined as a sequential development/use of markets as a part of a longer term strategy.  Stagesetting implies a specific sequence of doing or fostering A, in order to achieve B.  The historical examples I would use in my classes are::
  • Wal*Mart creating local monopolies in rural area to fund IT investments to become a global retailer and supply chain force majeure
  • Apple milking revenues from an older technological platform {Apple II series, e/c/gs} that was incompatible with their newer operating system {Macintosh} to fund R&D
  • TiVo developing a consumer market that needed to be sizeable, in order to generate valuable data for the B2B market {big media, advertising agencies, brand managers, etc.}
TiVo's problem is that it ran into problems reaching its targets for subscribers {i.e., network effects, where there is potential value in large numbers of users}, due to dot bomb and the economy of the early 2000s. It's seductive to think of the old days of Web 1.0 of build it, they will come, and you will make money.  Flickr is touted as a poster child for Web 2.0 network effects, where large numbers of users post content to create a multi-million image repository of digitized images, using a "freemium" model of free for basic use, but advanced features/services are extra.

In my mind, a major stumbling block in Web 2.0 is a lack of clarity on how network effects turn into cashflows.  In my opinion, Facebook {social networking} and Twitter {microblogging} are social utilities, each with their distinct set of characteristics, which I'll go into in a future post.  In my opinion, the key questions for both are how these technologies can leverage their user bases to become a platform for generating revenues by third parties, with Facebook and Twitter skimming off of the top.  In two years, the iPhone platform didn't exist.  Now, it's an ecosystem that's a quasi-market controlled by Apple, in terms of the hardware, software, and platform.  It remains a question of whether Facebook or Twitter can be leveraged as a platform or as a constellation of users to make money.  Mergars notwithstanding, it will require some x factor not currently in their business models.

So, who do I think is poised to make a Web 2.0 play in a way far beyond banner ads?  Our old friend, MySpace.  While many view it as a pariah and also-ran to Facebook, MySpace still has a 100,000 monthly uniques and is billing itself as a social portal, which is owned by media giant, News, Inc.  I could see MySpace evolving into an entertainment industry gateway site, offering free and pay content and ways for users to share, link, and interact with users with the similar affinities.  Users can link to create virtual communities in affinity and geographic space.  MySpace will need something to make it more compelling, such as the range of produced content on Hulu or the "radio like" function of music streaming sites {Last.fm, imeem, blip.fm, etc.}.  Web 2.0 sites really need to examine simultaneously what value they bring to the table and how their site/technologies can be leveraged in some way to generate revenue streams.  In light of this, I expect to see more mergers or a wave of extinctions, as the Web 2.0 hype wears thin.  Of course, there's always Web 3.0...

Image:: Margot Tenenbaum's set design, The Royal Tenenbaums {2001}

Twitterversion::  newblogpost:: Behind the hype of Web 2.0:: the future of #Facebook & #Twitter. How will they survive to make money?  http://url.ie/2fjs @Prof_K

Song::  Together In Electric Dreams - Philip Oakey & Giorgio Moroder

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