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The Web 2.0 Deadpool

There are so many new web 2.0 websites begin created that the majority of them are doomed to fail and will innevitably wind up in a web 2.0 ‘deadpool’. Everyday there are atleast a dozen or more new sites that is intended to perform even the most mundane of tasks as long you can slap a web 2.0 logo or spin to it.

Why is everyone looking for the next big thing when the odds are so far stacked against them? Thge answer is obvous. To get rich. Virtually every web entrepreneur will sell out for the right price, and that is precisely what all of these web 2.0 entrepreneurs are doing. A group of coders will get together, create a site, perhaps apply for funding, do a little PR and then wait patiently for a buyout.

While many small web 2.0 sites have been aquired for millions of dollars, the supply of sites vastly exceeds the demand. However, since our perception is that these sites are so easy and cheap to create surely is is worthwhile taking a small gamble and building one in the faint hope of being aquired?

The above statement is false for a few reasons. Creating web 2.0 sites actually isn’t particularly cheap nor is it easy. Unlike web 1.0 sites web 2.0 sites are large and complex and involve creating user platforms. Users have to have an interface from which they can interact with a widget and or other users. In addition, users often demand customization and personalization. So not only does the coder need to provide a novel application, but he must also facilitate an interactive and customizable environment.

Hiring coders can become prohibitivley expensive, and adding additional members to a development team will dilute your stake in the company. If five programers create at site and it gets bought out for $10 million each will get $2 million, and after taxes your stake may only be $1 million. Not exactly life changing but good. However, if a VC funds the company your stake will be even smaller. Perhaps you will only get $1 million before taxes.

$10 million dollars isn’t small change though, and thus aquisitions of those sizes are rare. If the site doesn’t get squired which isn’t often isn’t the case the founders are left with a site that will probably fail. As I wrote before Web 2.0 sites thrive on large userbases and networks. Due to the ever gorwing number of Web 2.0 participants achieving the minimum sized network required for self sufficiency is very difficult. If the site doesn’t cross that required threshold it will fail. Meanwhile, expenses are mounting; advertisng and coding in particular. Without a sufficiently large network, web 2.0 sites are usually unprofitable.
In the next two to four years, we’ll notice an ever growing web 2.0 dead pool consisting mainly of sites that were created to be aquired, but weren’t. What does this mean for entrepreneurs?

1. Don’t build a site for the sole purpose of selling out
2. Create a site that is profitable WITHOUT a large nework. A simple website consisting of various articles and adsense ads can be very profitable since it costs very little money to maintain and run.

3. Keep expenses at a mionimum. Only increase spending if you have a plan for directly transforming that added expense into some form revenue & profit.