Why Most Web2.0 Companies Fail

    May 2, 2007

If you improve the value of another service based largely on their infrastructure or data, it usually doesn’t take much for them to roll your offering into their well known brand, and kill your market position.

Alexaholic was praised by Alexa for being innovative, right up until they sued when the creator failed to sell them the domain name. It took a year for Alexa to clone Alexaholic.

AuctionAds created an easy way to syndicate auction listings. Frank Schillng mentioned eBay to Go offers a similar interactive service. eBay to Go came out within months of the AuctionAds launch.

I helped launch ReviewMe. ReviewMe extended its model to include allowing advertisers to create a marketplace of review requests that bloggers can chose to accept. Text Link Ads also recently announced post level text links as a product under their flagship TLA brand, which is sold using a more profitable business model (since it has recurring ad costs). Patrick Gavin ensured I got a good deal, but without his dedication to making ReviewMe a success it could have just become a test platform for TLA that didn’t make much money.

Tim O’Reilly wrote data is the new Intel inside. If your success is based entirely on another network’s reach / brand / information / platform it is hard to have enough of a core asset to be profitable or a purchase target. It is hard to stay ahead of the value curve since the core brand has inertia and fatter margins. The reason most Web2.0 companies will fail is that they are creating entire companies based around a feature to another product, while having no market leverage.