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March - 2007 - issue > Cover Feature
Spinning-success-in-Web-2.0
Vidya Balakrishnan
Tuesday, February 27, 2007
In the ear of the ‘new Internet’, dubbed web 2.0, the consumer is truly the king. He decides how to use applications like podcasting, tagging, blogs, social networking, mashups, and wikis, and is at the center of the primary principle that drives web2.0: User Generated Content (UGC).

This has allowed entrepreneurs to cash in on their unique and imaginative ideas involving the user, and has given rise to a surge in Internet start-ups. A recent Dow Jones VentureOne study reported that a total of 49 start-ups were funded in the first half of 2006 as compared to 59 for all of 2005. VCs too are cocking up their ears, not wanting to miss out on the action. Investors reportedly poured in $263 million into Web 2.0 companies during the first half of 2006, as compared to the $199.1 million for the entire year of 2005.

Three basic trends have transformed the Internet into a hotbed of innumerable opportunities for entrepreneurs. First are the benefits emerging from the omnipresent broadband. Second is the low cost of web infrastructure and presence of open-source programming tools like MySQL, PHP. Third are the technologies like Ajax transforming web-based software into graphical and interactive desktop applications.

While on one hand this denotes abundance of opportunities given future market potential, on the other, the plethora of ideas can mislead an entrepreneur easily. Salil Deshpande, Principal, Bay Partners opines that entrepreneurs currently have too many ‘innovative’ options to choose from the mixed bag of Web 2.0 – one would never know what works, until it does. While Deshpande believes new investments will flow into novel business models only, he encourages Web2.0 entrepreneurs to look into intelligent aggregation and filtering and prioritization the content.

The past success of entrepreneurs in Web 2.0 had been based on their ability to leverage on this low cost of infrastructure to generate a successful businesses model. One such successful entrepreneurial attempt came in the form of MySpace, a social networking site seeded from a garage. Today it is garnering 80 percent of visits to total online social networking websites and was recently bought by media giant Rupert Murdoch for $580 million. YouTube, another such venture focused its business model on allowing users to post online videos for free. Today, the portal hosts 60 percent of all online video content. One of the major successes of Web 2.0, it was acquired by Google for $1.65 billion.

Online video is a rage catching up with the new age entrepreneurs; and an estimate pointing out that 55 percent of all video content consumed online in the U.S. in the next three years would be user generated has pushed the skies further. Market analysts have envisaged revenues tied to UGC videos exceeding $850 million by 2010.

“Free access to online content, lowered cost of copyright and free distribution has managed to pull users into web 2.0. However this might not be able to ‘hold’ them there,” remarks Deshpande. The spurt in opportunities would mean a clutter of similar companies, and many that have been successful once could fail.

Kleiner Perkins backed Friendster, one of the first social networking sites on the web is a case in point. Today Friendster has lost out to others in its league, raking in only a fraction of the audience of MySpace (Source: Web traffic tracker Nielsen/NetRatings). Why one social networking site works while a similar one fails would be the hard nut that entrepreneurs would have to crack. And cracking this ‘nut’ would ensure a spot among entrepreneurs who have tasted, and will taste success in the world of Web 2.0.

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