Donna Bogatin Peels Back the Onion

Donna Bogatin has a great read over at ZDNet about the champions of Web 2.0.

She starts off with a bang:

It is fitting that YCombinator’s Paul Graham did a feature interview with Michael Arrington’s TechCrunch. The two entrepreneurs have a lot in common: they both are making money by promoting Web 2.0 start-ups lacking business plans.

Donna’s point, which is one I and other have been making for some time, is that, while the internet and that sliver of it we call Web 2.0 may have changed the rules ever-so-slightly, the tried and true rules of business still apply. Business is about making money. Not building a cool toy or giving away a lot of stuff to a lot of people. Too many of the people who control the microphone in the blogosphere are either making too much money or have fooled themselves into thinking they are going to make too much money to talk about this. But it’s true.

If people were genuinely interested in changing the business landscape through the use of this collaborative software, they would encourage, or better yet demand, that some thought be put into exactly how you new social bookmarking service is actually going to make a profit. Instead, everyone keeps on yukking it up at Web 2.0 parties and nibbling on the low hanging fruit- ad revenue. Once the fruit is gone, there’s always eBay.

I’m no VC, but let me punch a few holes in this quote by Paul Graham:

What I tell founders is not to sweat the business model too much at first. The most important task at first is to build something people want. If you don’t do that, it won’t matter how clever your business model is. Of course you have to have a business model eventually…

If that’s all it takes, here’s my new Web 2.0 service. Start a web page where anyone who clicks on a link will be sent $20 from a Paypal account. Everybody wants money- especially if it’s free. We’ll put some AdSense ads up there to generate some revenue. Once we get a lot of traffic, then we’ll figure out how to monetize it.

When your entire business is based on people using your product for free, customers are going to be highly resistant to later paying for it. If all you do is give stuff away, you’re a charity. Charities are good, but the money they get should be called donations, and not investments. Particularly when the dream return on that investment is greater fool money via an IPO or getting bought by Yahoo.

The rules of business apply to Web 2.0. Even if every 5 years or so someone catches lightning in a bottle, there are hundreds more who lose money or give up.

There are plenty of reasons why the champions of Web 2.0 don’t want to recognize this indisputable fact, but that doesn’t mean the rest of us have to buy it.