Is venture capital’s love affair with Web 2.0 over?

The worst thing that happened in these last couple of years is that damn versioning of what is a simply the broader continuum of the evolving web. Define web 2.0… just try it and you will see the futility.

What is coming to a close is the notion that all online services need to be free and paid for with advertising; there are too many startups that are dependent on a business model that has yet to prove itself for tech companies.

VCs will still fund these deals and Valley pundits will gleefully predict the next Twitter, but the fact remains that most startups simply die, some get acquired for nothing, and the rare few go on to great success. No different here, move on people… nothing to see.

I am waiting for venture investors to once again discover that there is money to be made in enterprise software.

Silicon Valley remains the hotbed of Web 2.0 activity, but the hipness of start-ups with goofy names is starting to cool in the face of economic reality.

Dow Jones VentureSource on Tuesday released numbers of venture capital activity in Web 2.0 companies and declared that the “investment boom may be peaking.”

[From Is venture capital’s love affair with Web 2.0 over? | Tech news blog – CNET]

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6 thoughts on Is venture capital’s love affair with Web 2.0 over?

  1. I think the key will be for startups to think more about a clear revenue model in addition to a cool idea. The tech community encourages founders to come up with ideas that solve simple problems for consumers – what about solving problems for advertisers instead? Too many startups think their revenue model is “targeted advertising” without having a clear strategy for how to best leverage their product in order to achieve this. Seems like everyone’s revenue model is this vague concept of targeted advertising. If facebook & myspace hasn’t fully figured it out, what makes you think you can with your 50k UVs/month?

  2. Leo,

    Changing the behavior of advertisers is very very hard. This is why DoubleClick was worth what it was worth. On the other side, consumers have a finite amount of attention and the core value of the new generation of consumer web applications is to trade that attention. Attention can be very valuable if it is bound by the right context. See Glam for example.

    Regarding money to be made in Enterprise Software, the challenge is I think both the existing complexity of the IT environment and the cost of creating and maintaining a direct sales force. Saas could help remove some of those barriers but the adoption patterns are not very very clear. Which verticals or areas to do see driving the appetite for enterprise software?

  3. Edwin,
    You hit on an important point, everyone talks about wanting micro-targeting and new models, but go talk to an advertiser and all they ask you about is pageviews.

    RE enterprise software, yeah it’s hard but if you look at all the public software companies who are making money right not, they are largely on premise traditional companies. So it’s not the cost of maintaining a sales force that is the key number, it’s margin after cost of sales.

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  5. Edwin, Jeff – you both made solid points. I’m not proposing that startups should invent new and revolutionary new advertising models. Advertisers won’t change their behavior and certainly won’t allocate new budget for something they’re not familiar with. Instead, i think there’s room for improvement on existing solutions advertisers have already adopted. Many startups don’t seem to focus on this enough and don’t clearly differentiate their value proposition vs. all the other me too startups. The fact of the matter is that banner ads and the traditional CPM/CPC model is broken – users have learned to tune out traditional advertisements even if it’s targeted and that trend will continue. I was speaking to some friends the other day and they didn’t even know facebook has banner ads until i showed them.

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