Which bits of Web 2.0 will survive the Crunch?

Saturday, December 20. 2008

Which bits of Web 2.0 will survive the Crunch?

Interesting article from Jeremy Liew of Lightspeed Ventures in the WSJ on the impact of The Crunch on Web 2.0 companies (mainly consumer focussed ones). He predicts that:

...media buyers will focus on both a flight to quality and a flight to surety. This will benefit three types of startups: companies with large audiences, companies that sell direct-response advertising, and companies that offer valuable niche content.

His argument is that:

- Sites with well known brands and meaningful traffic will remain in the ad plan. Just as no one ever got fired for buying computers from IBM in the 80s, so too no one will get fired for buying advertising from Google and Yahoo! today. However, many smaller companies have built huge audiences that are just starting to be monetized. These are the companies that will see the most growth through the recession.

- In an uncertain environment, advertisers will also want to shift more of their advertising budgets to direct response (the online equivalent of 1-800-number advertisements) and away from brand advertising.

- It will be very hard in the short term to prove that Ad targeting is more effective and justifies a premium price. As a result, vertically focused content sites will have an advantage.

We think the other Web 2.0 companies that survive will be ones that:

(a) Don't need money for 2 years and thus don't have to make the above compromises - those that have serious money are lucky, others are considering reducing burn rate.

(b) Can find some form of non-Ad based monetising model that works - Flickr, for example has moved to a freemium play

Those that are not in these boxes (we can all think of a few, some fairly well known) will probably hit the deadpool (or have their plugs pulled - expect lots of "sales")

Posted by Alan Patrick in Business Models at 22:47 | Comments (2) | Trackbacks (0)

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I don't want to bother signing into WSJ to respond to this insultingly self-serving piece by a third-tier VC.

Of course, Flixster, Rockyou, and the like are doomed now that the bubble has (thank god) deflated. Incidentally, it is both hilarious and telling that Liew starts off by proclaiming that the rise of ad revenues in the recent past is the result of Web 2.0/user-generated content sites.

As everyone knows, this rise happened in spite of these VC-funded lottery tickets. It was actually the result of (a) the general acceptance of the Web as an ad medium and (b) the specific rise of Google's search ads product.

UGC/social networks/Web 2.0 has been a UNIVERSAL failure from an ad dollars perspective, while being a wonderful platform for FREE PR.

#1 Alphanaliste on 2008-12-21 00:02 (Reply)

Yes, I deliberately didn't comment on his thoughts of which companies win/lose, more his thoughts of how to structure the market.

I agree most of the SocNets are doomed, though I'd agree re niche services - if they service attractive audiences.

One of the original Web 2.0 darlinhgs, Flickr, has managed to sort out a Freemium model which is interesting

#2 alan p on 2008-12-21 00:52 (Reply)

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