Bubble Burst 2.0?
There are rumours flying around the web that bubble burst 2.0 is imminent. Not only another web-based bubble burst like what happened back on 1999-2000 era, ZDNet also predicts that we might face another burst from open-source spike. I am jaded on this matter but I can say that I disagree that this current spike on open-source businesses is a sign of a burst. However, current flows of venture capital to an internet start-up company do look like it’s 1999 all over again.
There are shopping spree by Murdoch buying IGN, another one injecting US$ 2.8 Million on Digg.com, a recent acquisition by Yahoo to buy Flickr, and many many more, smaller scale cash injection or acquisition that might skipped our radar. This is indeed reminds us back to 1999 dotcom bubble burst which started when many entrepreneurs jumping on the wagon to create a new business that is meant to be sold. Most of those business doesn’t have any viable and sustainable business model.
So despite the shopping spree and spike on VC investment on web 2.0 business, will we see another bubble burst, bubble burst 2.0?
The pioneer of web 2.0 is obviously Google and Yahoo and other smaller firms that revolutionize how we live today (del.icio.us, flickr - bought by Yahoo, digg, etc). They add creativity and innovation to todays life and enhance it further that creates the spark such as folksonomy, better customer interaction, practically a world without boundaries and a world where there are solutions for everyone.
Based on those industry giants, what business models do they use? What can you see out of it? Google claim to be the service company, Yahoo also claimed to be a company that puts customer service above all. But what I see from those general example is that they build their business around advertising. They create (or buy) exceptional services (which we can’t live without) and throw a whole bunch of advertising on it as a source of income.
There’s nothing wrong with putting advertising as the main income of course and there’s nothing wrong with their business models. The problem is, they take role as industry giants and as the growth machine of web 2.0, it is very very dangerous for them to depend their business model around advertising. What they need is a new business model that shift from advertising to a more viable (and safe) one.
The smaller firms is not doing any better. The newly VC-ed company, Digg, is using advertising for their main source of income without any option on charging bucks for their membership (CMIIW, probably they will add this feature later). One of the few company that does charge premium account such as Flickr does not exploit this feature enough. To be frank, the core of web 2.0 is ‘free’ and advertisments.
Free is of course the gimmick of today (along with the invitational methods), but giving something for free and then throwing a bunch of ads in the hope that someone will click those ads is not a healthy business model. Why? Free riders problem. Almost half of the web 2.0 business today using advertisment as their main source of income, by the end of the day, who’ll advertise on whose website?
We need a whole new paradigm of business model for web 2.0, a business that is not fueled by the rage of advertisements. A business that is made to grow, not to be sold. I have some models that might fight to this new landscape but I will safe that for future posting. Until then, please tell me what you think.
