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.

Tags: web 2.0

Nick Carr has a post today asking if the whole social application thing is a phenomenon or a passing fancy. In sum, he argues that it is cyclical and somewhat of a fad. Just because all the geeks on the net are vigorously adding links to Delicious doesn’t mean that anyone in the real world even knows what Delicious is. A few people in a small room can make even a casual act look like a trend.

On the whole, I completely agree with that. After I read Nick’s post I asked a few people in my office if they’d ever heard of Flickr, Netvibes or Delicious. One thought Netvibes was Netflix and none of the others even ventured a guess. These social applications are enjoying the same loud voice in a small room effect that I have written about in the context of blogging.

But there are two areas in which I disagree with Nick.

First, Nick couches the discussion in terms of getting things done and social production. He says social applications are extremely inefficient ways to get things done. In the context of applications designed specifically for productivity, that’s a fair way to look at it. But I don’t think you can ignore the social part of the application. I don’t think the mostly young people who use some of the social applications think in terms of efficiency when it comes to social interaction. Delicious may be about personal productivity, but Flickr and certainly MySpace are more about social interaction and the human need to connect and share.

When it comes to social applications, efficiency doesn’t always matter.

For example, it’s faster to push a speed dial button on your cell phone and talk to a friend about where to meet for dinner than it is to email, IM or SMS him, particularly on a phone or PDA. And even though many thought IM was a fad, it has become an integral part of the communication system for an entire generation. Granted, I never SMS or IM, but just about everyone I know under 30 does it all the time. I can’t put it in scientific terms, but there is something about sending IMs that is appealing to people- notwithstanding its empirical inefficiency.

Secondly, I think you have to distinguish between the social applications designed for computer geeks and those designed for the larger population. Certainly Technorati, Netvine and the like are largely the playground of the smallish tech crowd. Take one stroll through MySpace, however, and you’ll notice right away that the horrendous looking pages designed there are not the work of coders and geeks.

The secret to success for social applications is to achieve penetration into the non-geek population.

When I asked the same group at my office if they’d ever heard of MySpace or YouTube, all had heard of MySpace and most knew about YouTube.

MySpace (which is an evolutionary successor to Geocities), or it’s yet to be hatched evolutionary successor, may very well become a central repository for social resumes and affiliations. YouTube is well on its way to becoming the central archive for videos. The trick will be to figure out a way to grow up with your user base. If MySpace can make it cool for people to keep their MySpace pages after they pass 30, get married and start a family, I can see MySpace becoming a part of the online infrastructure the way eBay and Craigslist have.

It’s not about productivity as much as it’s about longevity.

The challenge for these applications is to stay relevant and fun enough to get an allocation of a user’s leisure time- because they are largely within the leisure sphere and outside of the productivity sphere. On that, Nick and I agree.

Mathew Ingram says that to measure the cultural effect of these social applications, you have to look at them as a group, and not just individually. He also believes that some of the parts of these applications, such as tagging and sharing, will eventually find their way into mainstream applications.

Nick says about social applications, in a quote that many would apply to blogging, “it’s a fun diversion for a while – and then it turns into drudgery.”

It’s drudgery if you have a task to complete and the application doesn’t assist you in completing that task. But social interaction is not always goal driven. The stuff that provides fun and connectivity has a good chance to become a permanent part of online life.

The other stuff may very well be the new pet rock.