Small is beautiful for Web 2.0 start-ups

(continued from previous page)

The founders of Upstartle, which makes an online word processor, Writely, first considered building collaboration and document management software for corporate intranets. But they eventually scrapped that idea and decided to focus on word processing over the Internet.

"What we're seeing with Web 2.0 is that the game of what a software company is and how it gets started has very much changed."

--David Rose, New York Angels board member

"In the past, you had to do a huge, overwhelming thing--a suite of stuff. Now it seems like you can do a lightweight part, which would've seemed like a feature before, that can be stitched together with something else," said Writely co-founder Claudia Carpenter.

Because the "Internet has become an application platform," Writely can connect its word processor service to other Web services, such as blogs or photo-sharing sites, Carpenter said. Web sites are increasingly publishing APIs, or application programming interfaces, which let users and developers share information between different hosted services.

Another important technical advance is the emergence of AJAX a development technique for creating interactive GUIs and Web pages that can refresh Web server data automatically. With AJAX, programmers can build hosted versions of desktop applications, such as document and photo publishing, which offer a user experience similar to PC-bound applications.

In addition to pursuing a narrow product focus, new companies can get off the ground with significantly less money than a few years ago, according to entrepreneurs and investors.

Freely available open-source software is becoming increasingly robust and powerful hardware servers are relatively cheap. Five years ago, start-ups would have had to spend tens or hundreds of thousands of dollars for equivalent products.

Operating costs can be lower as well. 37signals, for example, has not spent money on marketing, relying instead on viral marketing techniques, like blogs and word-of-mouth advertising from its customers, said Fried. The company of seven employees has no sales people.

"What we're seeing with Web 2.0 is that the game of what a software company is and how it gets started has very much changed," said David Rose, board member of New York Angels, which is an angel investment organization that recently launched a practice for Web 2.0 companies.

Rose said Web entrepreneurs nowadays can go from idea to functional product in under a year with under a half-million dollars in investment. "It used to take multiple years, millions of bucks and years of top-down planning to get the first product out," he said.

The Web-based software model applies to both the consumer and the business market, said Richard Forman, managing director of RDF Ventures and a member of New York Angels.

[SqlserverCode]

I looks like

I looks like the web 2.0 companies will not end up as pets.com and others
There is no big vc money wasted, for example Digg only got a couple of million dollars in VC funding and doesn't have a staff of 500 people who are doing nothing all day

http://otherthingsnow.blogspot.com/

[nyte3k]

It's different this time.

Most of the web2.0 companies seem as thought they'll be here a
lot longer than the first .coms that are now gone. They seem to
be staying small, and generating money like most businesses
do. I've been finding a few small interesting .com companies as
of late, one that i thought was kind of cool was http://
www.wuraweb.com it's basically like a yellow pages, except you
can actually see prices.

[cnetaphobic]

i agree

i think they will b here a lot longer than the originals but some of the social sites r following in the same path, by just being exact mocks of each other. the only reason i think they will exsist longer is b/c more ppl r on the internet. sites like flicker, vimeo,and etc. i dont think we will c long. as 4 that wuraweb site, its ok, havent seen sites like that b4, if ppl start copyin them tho, they me b short-lived as well, unless they bcome a leader in their sector. prime example, the netflix and blockbuster war, even tho netflix is not short lived, if it wasnt 4 blockbuster undercutting & advertisin like they do, netflix wud c lots more money.

[PragmaticIdealist]

Jason Fried is a legend in his own mind

It pains me to see Jason Fried get positive press when in reality his techniques are very much like a cult leader and he treats his customers like crap. Just check out his forum and see how many times he dismisses customer requests with a "I know better than you" attitude.

[208mbrandon]

It is about time...

The idea that a company needs to have millions of dollars and giant customers is a myth perpetuated by the similarly bloated VC firms who have to have large investments to move their needle.

There is a niche for second or third-tier VC firms working on churning out these small companies. They may not ever go public, but they can provide a nice dividend for the owners.

Mark Brandon
Sustainable Log - News and Views for Socially Responsible Investors
http://sustainablelog.blogspot.com
http://www.firstsustainable.com
When you subscribe to Sustainable Log, we give $1 to Alternative Gifts International in support of a cause of your choice.

[2ndsite--2008]

Change is Opportunity

The Software sectors of the VC industry are changing...I opportunities are there for those who WANT to change. I have not seen much evidence of WANTING to change yet...though things are begining to stir and I suspect it is only a matter of time...

http://www.michaelmcderment.com/

[2ndsite--2008]

Longer Market

One of the big things about Web 2.0 is monetizing the long tail. That used to cost big money.

The long tail is waht Jason is on about with the "fortune 5 million". I kind of like that as a catch phrase...

[SoftwareBizExchange]

Great article

The guys at 37Signals are right on the money. I posted their article at my site www.softwarebizexchange.com m