Web 2.0 without a doubt has and does have a lot of value, but that being said, there are a ton of organizations – many more that do not provide value, than do. As the economic recession raises the level of accountability, many 2.0 organizations that never really had a feasible business model are closing shop. The biggest issue, companies reliant on advertising spend. You can’t just make a site anymore that is 100% dependent on advertising. Gartner analyst Andrew Frank says it best, “A cold wind’s begun to blow on web 2.0 start-ups, especially those whose business models run along the lines of building a large and loyal audience and then monetizing it with advertising.”
You have to have a site that also charges a fee or a site that works on a subscription model. Even if it’s the 5-10% of your users that actually pay for the product that carry all the other users that don’t pay. It’s all about being cash-flow positive, you know, actually making money! There are some organizations that do in fact make money now through advertising, but are they really sustainable? Twitter perhaps could fall into that category.
Still others like the worlds largest free online dating site, PlentyOfFish.com (POF) are perhaps beginning to hit a wall. Here is what CEO Markus Frind said recently, “The problem with free is that every time you double the size of your database the cost of maintaining the site grows 6 fold. I really underestimated how much resources it would take, I have one database table now that exceeds 3 billion records. The bigger you get as a free site the less money you make per visit and the more it costs to service a visit.
We are going to start introducing some products and features to try and get some of the 10 to 20 million dollars a month my users are spending elsewhere. There is really no money in being free and we have to start experimenting with other models now or we won’t be able to compete in 3 or 4 years.” I guess Chris Anderson didn’t take into account the recession when he in February declared, “Free! Why $0.00 Is the Future of Business“. Out of fairness to Mr. Anderson, no one saw this economic collapse happening at the level that it has! Also, when you get to the size of a POF site, it’s a whole different scale. The site is clearly not a 2.0 site, but could face similar monitization issues due to it’s size alone and the cost of maintaining it under it’s current business model.