Approaching Bubble 2.0 or transitioning to Web 3.0?

Numerous new social networks launch betas every day. People are sending invites offering their virtual friendship to their real world friends or just strangers. Corporate social network applications target enterprises offering premium wiki and blogging tools. Owners of Web 2.0 businesses are trying hard to attract more users by inventing “never seeing before” features.  Moreover, social network oriented B2B solutions popping up like mushrooms after the rain. At the same time investors are showing their interest in this market.

All of that reminds me late 90s followed by dot net bubble burst. The question is it going to burst this time? I am not an expert. I am not a psychic either. Here is my personal overview of the problem.

           

We have learned an important lesson after dot com bubble burst: Don’t overestimate the value. These days’ VCs are more skeptical when evaluating startup companies. More importantly entrepreneurs develop their business model with this in mind. Of course a lot of Web 2.0 companies try building business for sale as described in “Built To Be Bought (Bubble 2.0)” article by David Hornik. Here is a quote:


“…If companies are indeed again being built for acquisition rather than independence, venture investors are in for a rude re-awakening (that will be precipitated by a very loud popping sound). While a few companies being built for acquisition will be acquired, the vast majority will ultimately run out of money and be shut down (particularly as each new Web 2.0 idea doesn’t just spawn one company but three or four)…”
 

 

 But is it a bad thing? There is a good article on Forbes by Brian Caulfield called “Where Are The Web 2.0 IPOs?”. Here are some quotes from his article

“…venture capitalists say that while the boom is back, there is a fundamental change: The era of the overnight IPO, they say, is gone forever…”

“…You can get traffic overnight, and you can get a viral campaign going overnight, but that doesn’t instantly result in dollars…”

“…Instead of floating their own IPO, they hope to get hoovered up by a Web 1.0 veteran that’s already gone public…”

It became harder to go IPO these days for Web 2.0 startup. I think it is a good sign. Once your business model is working you need to be able to build value in the company before going IPO. You need time and lots of cash for that. That alone will assure existence of much stronger businesses out there. You can wake up famous these days, but you can’t wake up rich. On other side selling the company to a much stronger (financially) company will give a greater chance for your business to survive and grow because bigger companies have time and cash for that.

Web 2.0 companies bet on ad driven revenue! I’ve heard it a lot. Well, not all of them. Ad driven revenue becomes a secondary target while development of a solid business model is taking priority. Don’t get me wrong, ad revenue is a great option, especially with all new delivery channels we have now (mobile web, RSS feeds, etc.). Not to mention all of the additional possibilities Web 3.0 can bring to us such as Geoweb, Semantic Web or evolution towards 3D development (ex. Second Life). I would just not count on ads while developing my business plan. There are lots of Web 2.0 businesses out there providing B2B or B2C services assuring ad independent revenue streams.

Considering all of the mentioned above I would like to say that there is definitely a lot of value in Web 2.0 startups and much bigger percent of the companies are here to stay vs. those from the dot com bubble times. That will ensure a smooth transition from Web 2.0 era we live in to Web 3.0 future market.

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Offshore hard or stay home

I’ve been working in the software development industry for the last 10 years. During my career I’ve been exposed to lots of mixed information about “offshore”. In my opinion it all boils down to the following ways of looking at it:
“It’s cheap but quality sucks”,
“It can be more expensive than hiring someone locally”
“Communication can be a problem”
“It’s a good way to start”
Let me try to elaborate each statement.

“It’s cheap but quality sucks”
An Internet Startup Company very often faces a dilemma “Quality vs. expense.” Any entrepreneur wishes to get best possible result for the lowest investment (oh really?). It is especially true at the early stages of the company’s evolution when owners have to deal with limited resources and carry lots of risks.
Considering all of the mentioned above an offshore solution sounds like a good option. One thing to consider is how you are going to control product quality on all levels (user experience and backend). It is a good idea to have a local technical manager with a good knowledge of the product who will serve as a bridge between business team and an offshore team. This person’s role would be sort of a mix of Product Manager and Solution Architect. Company relying on business people managing technical aspect of the product risk to get in a situation where “It can be more expensive than hiring someone locally”. There is one EXTREMELY important item. You must know what you want to build before you start development. No really, I mean it. I can’t emphasize it more. You must have documentation, wireframes and possibly design ready to go. Don’t underestimate importance of that. Otherwise you risk going on a rough road of stops and runs that would lead to huge delays and even total failure of the project because of the recurring expense.

“Communication can be a problem”
Language is not the only problem. There are lots of things to consider including mentality and the way people think abroad. Not to mention project documentation. A friend of mine asked his offshore project manager from India to make his web store page design to look “a bit more sexy” at the final stages of page development. He was surprised to see a really sexy page (literally sexy) in the next dev release.
Ideally you should have an insider leading your project. In other words you should have a reliable person who speaks and even thinks in the language you offshore team speaks and thinks.

“It’s a good way to start”
I believe that if you carefully consider all of the risks and do you home work before you go on the offshore road trip it can really benefit your company. The most important part is to find an offshore team you can trust. We’ve changed a few offshore teams while working on Peopleizer Corporation (www.peopleizer.com) latest product called Sociaspot (www.sociaspot.com) and I have no regrets. My advice would be do not ever give an offshore team another chance. If you don’t feel comfortable do not continue the relationship and don’t spend any more money. There are plenty of companies out there that can help you.

Good luck to all of you. No matter what road you choose I wish you to have a safe trip and reach your destination..