Web 2.0 companies aren't making money, say investors

Andy Merrett Web 2.0 Leave a Comment

moneybag.gifA large number of Web 2.0 companies aren’t making any money, or at least no revenue, despite being popular, according to entrepreneurs and financiers in the know.

Many sites offering social networking, providing space for user-generated content, and offering other cool online services, just aren’t successful when it comes to bringing in the cash. Some observers are predicting that the myriad of startup companies currently trying to get noticed will be gone in the next couple of years, leaving just a handful of financial successes.

Concerns may be premature, however, as many predict that Web 2.0 (and beyond) will be very significant in the coming years. Part of the trouble is that it’s a relatively small group of loyal fans, albeit powerful ones in Silicon Valley, making some services popular.

Take Twitter, a great “micro-blogging” service that we talk about and use. Great concept, and used widely in the high-tech community, but be honest… how many people do you know that use it. Scratch that, do you use it? Most “normal” web users don’t. Twitter’s not yet making any money, either, though it is seeking funding.

That’s why just a few Web 2.0 companies are currently truly successful — they’re both popular and are making real money in some way. Facebook, MySpace, Bebo — services with big backers.

Other startups, though, may have over-inflated worth: “If you look at some of the valuations, you wonder what fantasy of revenues they’re based on,” said Mitchell Kertzman, a partner at Silicon Valley venture capital firm Hummer Winblad.

Those who survive won’t only have won over you, the humble web surfer, but will have a decent business model, generous financial backers, and a smidgeon of good fortune.

(Via Financial Times)

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By Andy Merrett | May 27th, 2008