Web 2.0 Tools: Rolling the Dice With the Cube

Face #3 – Who is the buyer?……When its free!!

For a change of pace, I thought I might focus on one aspect of the cube and raise some issues around the current economic meltdown and implications for  web 2.0 learning technologies.  In particular, I thought I’d focus on face #3 “Who is the buyer?”.  For many of the web 2.0 tools the buyer isn’t anyone.  There are no “buyers” only users. The services are offered free.  There are countless examples of such tools offering  presentation, video, slideshow, music, etc…. The thinking behind many of these ventures is to create a vast user base and then monetize this user base by offering paid premium services or by leveraging the potential of this user base to obtain a buy out by a larger company.  This model has been a driving force behind much of the innovation and creativity we’ve seen over the last few years.  However, in some ways this parallels the attitudes in the greater economy that have led to the current economic meltdown.  Web startups are borrowing time and money today with little or no ongoing revenue security going forward.

The End of Web 2.0 as We Know It?

With no real revenue model these ventures are hollow and highly exposed to external economic variables.  When the economy dips, the likelihood of converting non paying users nurtured on “free”  to premium paying users falls and the likelihood of obtaining a buyout by a larger, but now more cautious company also falls.  The short term “free” model now  becomes a long term charity service.  If I’m the owner of a web 2.0 startup operating on this model, do I stick around and support this venture and devote my time to non-paying users?  What happens when the first prominent web 2.0 tool pulls the plug and leaves users standing at the login page.  Will we loose faith in the reliability of small web startups to maintain our data and thus do we eliminate the “free” business model as a viable web model?

The Golden Age Of Web 2.0

Perhaps we are not only seeing the end of an economic boom, but the end of the web 2.0 boom of online tools where the business model of “free” will be seen as a golden era of creativity and innovation.

Any comments?

8 comments


1 Susan Wilson { 09.18.08 at 4:29 am }

An interesting “face” to examine in detail, Drew.

Here is an excellent article by Wired magazine on that very concept: http://www.wired.com/techbiz/it/magazine/16-03/ff_free


2 David Wees { 09.18.08 at 7:40 am }

I don’t really think the current Web 2.0 features are all free though. Facebook is largely supported by advertising for instance, as are most of the Google apps. Many of the other services which are free for individual users come with support contracts or premium services for commercial users.

However, yes I can see your point, many of the smaller start-ups are giving away free services in the hope of creating a large enough user base from which to extract paying customers. Not going to work now that people are starting to utter the D-word about the US economy.


3 Mary Burgess { 09.18.08 at 8:29 am }

To add on to David’s point, the other way a lot of these companies generate revenue is to offer add-ons to their free products that come at a monetary cost to the user. We recently used Ning for part of an online conference we did at work and though it was free to use, we paid to have ads removed from our site to make the UI a little less overwhelming to our participants.


4 davidp { 09.18.08 at 11:07 am }

This is very provocative post to me. I think you are onto something and likely ahead of the curve in thinking about it in the terms you state, and in the context of today’s financial meltdowns.

Some smaller web 2.0 start-ups will be at risk for the very reasons you’ve stated. Some web 2.0 startups that were featured in the most recent issue of Backbone magazine http://www.backbonemag.com might provide further samples for analysis against the Cube.

Many of the “free” web 2.0 ventures are indeed running on finite quantities of risk capital. How will they achieve critical mass or even sustainability in the current economy?

The open source movement has provided some models of practice here, as have multi-tiered commercial ventures like Ning, as Mary has noted.

d.


5 Cheryl Milner { 09.18.08 at 2:18 pm }

This is an excellent point Drew, however the onset of this potential bear market is often short term. Since 1957, the
average bull market of the S&P TSX Composite Index has been 26 months, whereas the average bear market, only 8 months. During the period between 1997 and 2002 the bear market lasted 25 months and declined some 43%. However, the following 63-month period (to 2007) the market increased by 149%.

As the Wired article points to we are entering a new “attention economy” thanks to Google who will lead the way by creating “page rank” to attention or traffic to money (ads). I have a great deal of faith in Web 2.0 as a capitalist vehicle and one which supports more altruistic ventures. Just gotta be prepared to go for a ride for awhile.


6 Gillian Gunderson { 09.19.08 at 8:28 pm }

Web 2.0, as a concept/business platform, could possibly perish based on our economy.

However, the concept of free “eyeballs on” propels profit all along the supply chain.

For example, “free” ftp, gopher, archie, veronica, usenet (yes, I’m old!!) propelled the local to regional to national isp movement of the early to mid ’90s.

Certain segments of the market die, but “free” doesn’t.

Thoughts?


7 Sarah Wood { 09.25.08 at 7:01 am }

I feel that web 2.0 technologies and platforms are here to stay. I have no problem with companies making money via advertising when the website is valuable to the user. Never before has the consumer had so much power. We are in control online. We go were we want to, we search for what we want to. The next website is only a click away. Entrepreneurs are realizing that if they create a valuable experience for customers online (a social networking tool, a learning platform, etc.), their users won’t mind if some advertising appears. If the website is valuable enough the user might even pay for it directly.

Sarah


8 Laura Macleod { 09.27.08 at 6:07 am }

Susan

Thanks for sending on the link to the Wired article – really interesting! Gives me plenty to think about, given that price is currently the biggest issue in my market (textbooks) and our owners are pushing for higher and higher. Maybe Flatworld is really onto something!?

Laura

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