Duncan Riley wrote an interesting piece on the emerging pattern in recent startups. Here’s my response to the posting:
This time around, it appears that it’s not the same models driving the tech explosion as the one that happened at the turn of the century. Unlike the last explosion, where growth of the web centered around taking traditional business models online (groceries, merchandising for example), this time the growth is focused on content generation and aggregation. With the advent of web technologies, explosive growth of user generated content, and lower barriers to entry afforded by virtualization and broader web expertise, startups this time around are concentating on a much smaller profit generation channel – ad revenues generated by glued eyeballs. Most companies nowadays take on the attitude that as long as you can get loyal users, you have a valid business model. What most people don’t realize is that the online advertising industry is still small in comparison to traditional advertising, and even though the industry is growing, growth in available ad space is outstripping the money available in the online ad industry. Can all these companies possibly reach profitability with the ad-driven revenue generation pie being chomped at the bits from every direction? I guess we’ll see if all this will turn into Bubble 2.0 – Just how effective will these ads be? Will key metrics such as CPM retain its value in 10 years? Only time will tell.
As Mike Arrington pointed out in this post, the trend is already pretty well demonstrated– revenue generation based on content is even more skewed than the “80/20” rule. With newspapers and professional media companies increasingly labeling their products “blogs”, individual bloggers may find it harder and harder to see blogging as a revenue generating proposition.
Along the same vein, can we consider Myspace and the L.A. Times competitors? If one considers that they are both going after the same online ad revenues, the picture becomes clearer that the newer startups may really be in for another round of rude awakening.