This article on CNet UK featuring Jason Calacanis's views on
Web 2.0 startup survival sparked (among other things) a thought on something I wanted to write about re industry consolidation:
Calacanis explained it wasn't Twitter, Digg or FriendFeed, for example, that would suffer, but rather the sites imitating them. "It'll be the 'me too' companies; the fourth and fifth versions of Twitter, the third, fourth and fifth versions of FriendFeed, the sixth, seventh and eighth version of Digg -- the ones the world doesn't need. They won't hit critical mass and they won't get advertising."
Not so sure Friendfeed has the volumes, but it is recently funded so should still have lots of cash on board. But overall he's right. In most mature industries where there are not specific (usually artificial) barriers, you typically get 2-3 players standing after the shakeout. Smaller players - the "Long Tail" of me-too businesses - go to the wall, get bought, or become specialised.
So, if you are the No 4 downwards in any product space, and don't have a lot of funding onboard, its probably time to think about getting specialised or getting out. (This applies as much to say Tech Blogzines as anything else by the way)
Its not just startups who go through this winnowing, Calacanis predicted that even large players will start to winnow down their own service stack:
"You're going to see a bunch of these groups inside of companies either be sold or shut down," Calacanis said. "We're seeing it already with eBay [selling] StumbleUpon and Skype. I would look for Yahoo to sell off five or ten companies, as might Google."
...The bottom line for the cash-rich companies during the economic downturn is that industrial panic isn't the solution. Rather, a quick syphoning off of less profitable parts of the business, along with the speedy acquisitions of potentially lucrative ones, will keep companies such as Google and Microsoft at least afloat in the violent waters of falling stock and failing investments
What was interesting as well was his thoughts re Google Knol, a service we also don't "get":
"I think they're going to downplay it and probably get rid of it. I've had people at Google tell me they don't understand why this product was launched. They don't agree with it and they think it's too overarching. I've heard from multiple people at Google that they regret the product launching."
It may need retuning to something else, but it can't go on as is - a Hits 'n Ads based user generated knowledge system is a recipe for scamsters.
Update - interesting article on BoomTown, Angel investor Ron Conway (who was one of those bringing the
startups to heel last week) interviewed a year apart and explaining his
recent thoughts in more detail. Net Net - everyting we've said in spades, and even if you are Nos 1 - 3 in your market, prepare for a hard time - one year's cash minima.
