Small is beautiful for Web 2.0 start-ups

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"The fascinating thing about Web 2.0 is that it's a double-barreled track. On the one hand, you have user-submitted content which is a sea change for the Web and then you have Web services for collaborative interaction and ASPs (application service providers), which will have a real impact on the enterprise world," he said.

Companies such as Salesforce.com, NetSuite and now SAP have demonstrated that corporate customers are willing to forgo large-scale internal software projects in favor of hosted services, at least for some select applications, analysts noted. Even Microsoft, king of the shrink-wrapped software market, has taken notice.

Calling on the Fortune 5 million

A lower barrier to entry makes it easy for new ideas to turn into fledgling businesses. Maybe too easy, some analysts said.

Many Web 2.0 online applications can be put together with just a few people and relatively little upfront money and time. But by the same token, those services can be easily replicated, according to investors.

Also, some business models for Web 2.0 companies are not fully tested. Writely, for example, is still in beta and evaluating several different revenue models, including subscriptions for certain customer segments and, potentially, advertising.

Mark Hildenbrand

"We're seeing a proliferation of start-ups, many of which may be nice little businesses that will be beneficial to the founders, but few that have the fundamental ingredients for creating lasting, meaningful businesses," said Onset Ventures' Hildenbrand.

Although building enterprise software companies may be tougher, money continues to flow into the field. But companies may pursue newer strategies, such as open-source or hosted applications.

Onset's Hildenbrand, for example is focusing on companies that have deep expertise in a particular technical area, such as mobile devices or RFID. He's seeking technology that does more than automate a set of business processes at global 2000 corporations.

"That's now pretty darn easy to do and hence the value proposition of doing it is not nearly as strong," Hildenbrand said.

But for entrepreneurs like 37signals' Fried, that's a row not worth hoeing any more. And, he contends, keeping his business operation small and his product simple doesn't mean making sacrifices.

"I think we can be one of the most meaningful companies in the next 20 years," he said. "We don't care about the Fortune 500--it's the 'Fortune 5 million'--the small businesses that are doing interesting things."

[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