Web 2.0 – Dotcom Redux?

TechCrunch recently posted a link to GoToWeb20.net, a self-proclaimed complete directory of Web 2.0. (I would recommend you try the link only if you have broadband) It is quite a nifty AJAX web-site with a logo-listing of a whole bunch of Web 2.0 startups, which are organized by date and tags.

If you haven’t had enough of the whole AJAX-social networking-folksonomy-long tail thing, this website should cure that for you. There are 283 startups featured on the website. That doesn’t tell you much. But when you find out that there are 26 companies working on some form of bookmarking, you know there is kool-aid being drunk in large quantities somewhere.

I found the site very interesting and will certainly be checking out the companies on them. Why? because many of these companies are great sources of ideas for me – ideas for user interface design or even features for our product. Unfortunately, since we sell to businesses that are privacy hawks (share my bookmarks? Heavens, no!) and won’t latch on to the next cool web-trinket that comes along, much of this is lost on our clients. No wonder that out of 283 there are just 5 companies that are tagged ‘business’ (or selling to businesses).

So is this all a repeat of 1999? Is the morning after, around the corner? And we know how bad the hangover was the last time around.

Yes, I think, but this time around the hangover may not be there at all. Here’s why.

I do think that most of these companies will fail. Not for any other reason other than that they are each chasing a sliver of a niche in an overcrowded market. A bookmarking startup cannot hope for an independent existence. Beyond Google, Microsoft and a couple of media companies there aren’t any quality buyers (Yahoo already bought deli.cio.us). Similar hypercompetition can be found in dating services to online spreadsheets.

The key difference between the dotcom boom (and then bust) and today is the amount of capital that is going into these companies. Today’s startups are sipping capital, instead of sucking it in from a fire hose like to dotcommers were. Today it is incredibly cheap to start tech company. Open source, hosted software, offshore development, widgets, blogs (for marketing) and many other things make it so cheap that a couple of guys in a garage can start a tech company and take it to where it has users, validation and acquisition offers. Consequently, many of these companies have not raised a whole lot of money. Sphere, a blog discovery startup, launched its beta a couple of months back. This was its second major release. Total capital consumed so far – less than $ 1m.

The concept of what a startup should mean may be changing. If it takes
less than $ 1 million to take a company to launch, we should perhaps be
looking at startups as ‘feature factories’ rather than young
free-standing companies – always intended to become a part of a bigger
company.

Web 2.0 is here to stay. The client-side interactivity that AJAX brings is real and will slowly come to be expected in business software as well. Notwithstanding my earlier comments, we ourselves plan to use today’s technology to make a better user interface. No matter if it looks consumerish. If its a better mousetrap, its a better mousetrap.

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