There has been lots of discussion about Tim O’Reilly’s Web2MemeMap.
This is a nice graphical representation of what is happening in this next wave of the Internet. As an add-on to this, I thought I would compare and contrast some differences, all quite obvious, with the first euphoric Internet wave. I have shared many of these thoughts in earlier posts like "The web-based platform" last October and "Web-based businesses circa 2004."
| Web 1999/2000 | Web 2005 | |
| Critical Mass | 12.8m | 209m |
| GoToMarket Philosophy | If you build it, they will come | Release early and release often |
| Tech platform |
Sun, Oracle, EMC= Big $$$ |
LAMP, open source, Intel, clusters, JBOD |
| Philosophy | Closed | Open, APIs and data sharing |
| Customer acquisition | Spend $$$, advertising | Spend nothing, word of mouth rules |
| Milestone for VC Funding | No users, great idea | Lots of users and rich interaction |
| $ used for | Building product, marketing $ to acquire users | Scaling back end, adding more features/functionality |
| First Round Funding | VC – $5-10mm | Angels – $0-2mm |
| Second Round Funding | VC – $10-20mm | VC – $5 or trade sale |
| Business Models | Unproven | Proven |
So as you can see, there are more sophisticated users, it costs significantly less to launch a new service/product, and many of the business models are proven to reach profitability. In other words, these business models are quite capital efficient. It is no wonder why VCs are quite excited about next generation web companies. All that being said, I, like others, worry about believing all of our own hype, and moving ourselves to another bubble. As you see from Tim’s map and my table above, if it costs less to build and launch a company, then the barriers to entry must be lower as well. What this really means is that building a sustainable competitive advantage in this new open world means leveraging network effects to foster loyalty, community, and collaboration. In most cases this will be enough to create lots of value. In other cases like Friendster vs.MySpace it shows that this network effect can also be fleeting.
One other point to consider with all of this is the significant changes ahead in the enterprise. Many of the points in the map above fit consumer-facing services. With the proliferation of broadband and the thought that the consumer is also an enterprise user, we must be cognizant of the many opportunities for web-based services to be brought into the corporation from the ground-up. Everything we did in Windows and Office and other enterprise apps 5 years ago can be done through a browser/web with Salesforce.com, Skype, and web-based email and calendaring. We are clearly not there yet, but this will happen. In addition, as enterprises move to a world where they must support multiple users and devices on-demand, they will need to buy new software and infrastructure to manage this new complexity. So as you can tell, I am quite excited about the opportunities as the web becomes a more robust platform and a gateway to deliver rich applications, but at the same time I express caution because I do not want to want to make the same mistakes we did in years past.
Very Interesting. A map of how web/software development works today would be a neat idea.
The question is: Why did these changes (above) come about – I believe its because of open source projects. Users became more willing to interact directly with those that develop software for them to ensure feature sets conducive to their own needs. While also being willing to endure the bugs and other mishaps – due to their interactive involvement in the design process.
This could be why users today are more evangelical about the web products they use. They are actually being involved at a very early stage in the design process.
Ed, Great post! I wonder if it costs millions less to start a web company today, or if entrepreneurs are just spending less because VC’s are unwilling to throws buckets of money at them?
“Get big fast” used to be the mantra. That meant hiring lots of people, buying lots of equipment and spending big bucks on advertising. Remember when internet companies were buying Super Bowl TV ads? I was at AltaVista at teh time and we spent $100M to build the brand. See my blog, The Next Big Thing, for a post about how we built comapnies in the good old days. http://dondodge.typepad.com/the_next_big_thing/2005/09/those_were_the_.html
Now companies build an audience and brand through viral marketing and offering great services.
Browser apps and services are making a big impact. Microsoft’s biggest threat is not Linux and Open Software, it is browser based apps, services, and tools that render the operating system irrelevant.
Dear Ed:
Check out Nova Spivack’s Radar Networks. Within the context of W3C, Berners-Lee and the Semantic Web, Nova would be considered light years ahead of even this great O’Reilly rendering. Its really about creating a killer app that can handle the meta data tagging in a practical way.
Cheers,
Hugh J. Sloan III
Atherton, CA
Is there any truth to the idea that the cost of a start-up is now less because there are greater opportunities to offshore a larger share of development costs (which, after all, account for the largest share of the burn)? I was toying with that idea in light of the hype about Indian firms angling for a position higher on the value added ladder in R&D. It seems that outsourcing greater fraction of development to, say, India can be a superficial blessing but an underlying curse – fragmenting the intimate process of product development is dangerous if the entrepreneur cannot have total control over the development process. Alternatively, can there be a situation where the development is offshored with only operational specifications of the project, leaving engineers abroad to work out the details. Then, however, ‘innovation’ itself is going abroad. What stops the Indian developer taking the eventual product to the market himself?
Hence I am curious whether, in your experience, start-ups ARE increasingly offshoring higher value-added components of the R&D (either early R&D or more specific product development). In a way, with Web2.0 and increasing globalization of the development processes it is easy to see how new entrepreneurs may be pitching this to VCs as a superior strategy. If the advantages are only superficial, as I described above, then the outcome could be a lot of resources wasted.
Matt to my mind that’s the map of what is happening in the internet nowadays. To be more precise the main trends that have not yet been completely understood by mass of course. Trends that represent values such as user participation, radical trust, and radical decentralization, suggesting that “software gets better the more people use it,” and likewise, content gets better the more people contribute to it.