August 26, 2009

More on the second dot-com bust

It may not be fair to call it that since, thankfully, there was no irrational exuberance this time for Web 2.0 -- on Wall Street anyway (among World of Warcraft junkies, on the other hand...). Just recently we saw that Google is still clueless about how to make YouTube profitable -- and the same goes for Facebook and (yak) Twitter -- and before that, online newspapers that charge are profitable and those that don't aren't.

While the story of the first dot-com boom centered on how great it was going to be now that we were moving brick-and-mortar operations online, the second dot-com boom's credo is to build a network or community where everyone can participate for free. A quick reality check shows that its result is to give every retard a megaphone for free. Doesn't sound like a very profitable business model to me, but then I didn't go to business school during the 1990s. It therefore warms my heart to read more and more news that the wild, wild west days of Web 2.0 are coming to an end. Or better said, that their children's treehouse is finally being blasted apart by the gale of reality.

First, Google's growth rate is declining, meaning that sooner or later they'll have to face up to the truth that "attract eyeballs and then push ads" is not, in general, a sound engine of growth. It worked for their search product and TV, but that'll be it. Just to give them the simple advice I previously gave Facebook and YouTube -- start charging. For example, charge everyone with a Blogger account an annual payment of $1 (or whatever). That's not enough to deter anyone who has one or wants one. I think you could even charge for the search engine -- again, say $1 a year for unlimited searching from what everyone regards as the superior search page. Charge for Google Maps too, although probably just some tiny amount per use rather than a flat fee, since using Google Maps is pretty infrequent and highly variable.

I don't pretend that these are the best imaginable solutions, but taking them seriously would be a huge step in the right direction. If people will pay a buck for a single item on McDonald's dollar menu, then they'll do so for something that is much more crucial to their survival (in their eyes). The only way they couldn't is if supply were high, but who else is there besides Bing? Even then, once Microsoft and Yahoo saw that Google was making some money from its search engine, despite most people defecting, they'd see the writing on the wall and start charging too. It would be a complete turning of the tables on the history of free -- before, it was one user who told another, "Hey, you know you can download mp3s for free?" "Really? Awesome!" Now, it will one company to another: "Hey, you know people will pay for search engine use?" "Really? Awesome!"

In the end, we'd probably end up with the same two companies with more or less the same market share, except they'd have a lot more money by profiting off of us. Each one of us would only be out a measly $1, but that's a boatload more that Microsoft and Google would have for developing new products and funding basic science and math research. If you're too cheap, have fun with AltaVista.

Next, the free-wheeling days of Wikipedia are coming to a close, as barriers to entry will be set for who can approve edits to articles about living people, to ensure a higher quality product is turned out. Oh no, wait -- it'll still mostly be a group of idiots (from the FT):

However, Mr Wales said that the site would set a "very, very low threshold to entry" for anyone who wanted editing privileges. "We're looking at anybody who has been around a very short period of time [on the site] and hasn't been blocked," he added – a number that could top 100,000, based on the number of people who are already frequent editors to the site.

Still, it's a move, however infinitesimal, in the right direction, although the bragging about the "very, very low threshold" shows how far there is left to go in deprogramming the people who run the internet. Again, if they charged $1 per year, they could hire a fleet of editors who aren't pathetic.

Yet, there are still signs that cluelessness abounds in the internet business universe. Try to think of the most moronic idea ever to build a for-profit website around -- is it stupider than "aiming to be a wiki for sports at all levels"? You lose. What will the website do?

The company and its investors are betting that sports fans -- and the players who hung up their cleats and goggles long ago -- will want to review and update Web pages devoted to their thrilling victories and bitter defeats.

"Our long-term goal is to be the definitive source of information on all athletes," said Nirav Tolia, chief executive of Fanbase and a veteran Silicon Valley entrepreneur with a colorful past of his own.

Sounds pretty lame to me, but maybe there's some way to make money here -- except that you would be charging the users who are providing all of the useful updates, rather than paying them for their labor. OK, clearly there's a better way to profit here -- and I'll give you one guess what it is...

It plans to make money by attracting a large audience and then selling advertising, and by letting users create and sell merchandise like customized team T-shirts.

You can't make this stuff up. Building some silly niche website that you hope people will flock to, in hopes of generating endless and ever-increasing ad revenues, is the business equivalent of wearing a flannel shirt with ripped jeans and whining about the patriarchy in hopes of getting a girlfriend. It's not the 1990s anymore, you dumb shits. Those ideas failed then, and they'll continue to fail -- because they're retarded.

And why not rag on YouTube's failure to turn a profit some more. Here's an update on their brilliant new ad strategy -- find those who've made videos with high view counts and ask them to show ads on the specific video, in addition to having super-popular partners who show ads in general. You can just hear the dolla billz a-rollin' on in. Back in real life, we learn from the WSJ that nearly all user-made online video sucks and won't make anyone any money:

Two years ago, the Internet was aflutter with the potential of Web video. [...]

That exuberance has since dissipated. "It's been a tough year," says Scott Roesch, general manager for, a Viacom-owned portal that focuses on material for young males. "A lot of people have realized that Web video is no longer at the stage where if you build it, they will come. You can't just throw $500,000 with a nice Web site and expect that to be a business." Although they'll still be launching more than a dozen new series over the next year, Mr. Roesch says that Atom is scaling back its development budgets and focusing on building online communities.

The few creators who do provide TV-quality content -- and it's saying a lot if you can't even equal TV -- are not really an exception. They're just migrating a TV show from TV to the web. Maybe a direct-to-DVD movie is a good comparison. Clearly in those cases, advertising could well earn a profit, just as it does on TV. But for almost all of online video content -- as it actually exists -- the TV analogy falls apart. YouTube may still be drinking the kool-aid, but at least is starting to see the light. I saw some analyst (or someone) on Bloomberg TV talking about how Google might earn money from YouTube, and he pointed out that almost no one is going to sit through TV-style ads just to watch a cat on a skateboard. If he's representative of the business community, YouTube's cat may be skateboarding out of the bag.

Like all failed utopias before it, Web 2.0 will soon have to admit that free costly participation in a network or community is no route to growth, or even sustenance. Pretty soon, your dirty and lazy hippie housemates will have to chip in for supplies and clean up around the commune, and stop treating it like a vagrants' shelter supported by some charity.


  1. I bet this article on craigslist got your goat, if you read it. If not, it will.

  2. Kevembuangga8/27/09, 1:55 PM

    For example, charge everyone with a Blogger account an annual payment of $1

    Reinventing Micropayments?
    This is sooooo... Web 1.0
    (and it failed BTW)

  3. Kevembuangga - the idea behind micropayments was to make it possible for buyers to make tiny payments to sellers, and to profit from being the middleman. The problem is that there were already companies in that space: the existing credit card companies. Back in the days of Web 1.0, it wasn't that easy to set up to process credit card payments, but under pressure from PayPal, the credit card companies made it much easier for online vendors to do so.

    There are already several examples of companies being rather profitable selling things at $1 to $5 a pop, starting with the iTunes store.


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