This is music to my ears – at the recent Web 2.0 conference in New York, the father of Web 2.0, Tim O’Reilly, questioned where Web 2.0 is at, and where it is headed.

Tim is quoted as saying that;

(These are) pretty depressing times in a lot of ways, and you have to conclude, if you look at the focus of a lot of what you call ‘Web 2.0,’ the relentless focus on advertising-based consumer models, lightweight applications, we may be living in somewhat of a bubble, and I’m not talking about an investment bubble. (It’s) a reality bubble.

Tim, in a pretty bold move at the home event for all things hyped, proceeded to use two examples, the first was the popular Facebook application SuperPoke, while the second was the popular iPhone app "iBeer," which simulates chugging a pint.

Time then rhetorically asked;

You have to ask yourself, are we working on the right things?

At last – I mean it is so patently obvious that we’re living in an over-hyped world where real estate that has no current or indeed plausible future monetization path can be heralded as the "next best things".

Over on Broadstuff, Alan Patrick did a "back of the envelope" calculation and came up with the following;

The total global Ad industry is circa $0.5 trillion, the online biz globally is about 10% of that at most, and the 80/20 of that goes to Google, Microsoft, Yahoo and AOL. That leaves about $10bn for everybody else, and much of that (say 80/20 again) is being hoovered up by existing high quality and/or high volume existing web assets, leaving in the order of $2bn for everyone else. Assuming every Web 2.0 startup wants to be worth at least $100m, and assuming that is on a 10x multiple of revenues, that means every successful company is running at $10m ad revenues pa. Thus, $2bn / $10m = c 200 startups can live on Ad funding globally on average. Even if I’m 10x out, so its 2,000, you can see that 100% Ad supported business models are not a majority play. And Advertising overall is likely to be in the decline for a few cycles now.

Of course what Alan didn’t factor in is the impact of the eventual discover that online advertising doesn’t really work, and that there are a bunch of emerging technologies that could cause a significant dent in how much of the ad biz comes the online way.

Tim gave some examples of businesses that actually mean something – he used the example of online businesses founded to effect social or political change – as opposed to those founded to enable virtual poking.

So let’s once and for all give up on free – find a way to monetize that doesn’t rely on ad revenues and stop over-hyping the latest time and effort wasting social offering out of the valley.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

6 Comments
  • Ben said…
    So let’s once and for all give up on free – find a way to monetize that doesn’t rely on ad revenues and stop over-hyping the latest time and effort wasting social offering out of the valley.

    Amen to that Ben.

  • Those of us in a monetizable space would greatly appreciate the rapid disapearance of the annoying free products that are ruining the commercial value of what we’re doing.

  • I agree with the issue of looking at products like iBeer as the next big thing.

    It’s a sad reflection of our increasingly consumer and convenience driven society , which highly values escapism, that this type of thing gets a heap of usage. Its also reflected in the online properties that used to be based on reasonably insightful journalism. .Most of the Editor’s picks on sites like stuff.co.nz are now things based on ‘Entertainment’. That’s what a large chunk of our population consider as news.

    I am wondering though why you think there will be an eventual discovery that online advertising *doesn’t work*.

    Do you mean doesn’t work as in other forms of advertising are more effective, or doesn’t work as in it doesn’t fit with the web as a medium, or doesn’t work as in all advertising in all media doesn’t really work?

    I am asking this as a sincere question – it’s the first time I have heard this and depending on the evidence it would seriously shape what my next business venture looks like:)

  • @Miki – well there’s a couple of things, one valid and one not

    1) I’m something of an outlier. No TV, fully self-informed consumer on the odd occasions that I consume and kind of impervious to marketing – so from that perspective for me advertising doesn’t work

    2) Even though Google is very targeted, in comparison to old school advertising – I believe it’s the tip of the iceberg in terms of how far we could go with true “personal intention” type stuff. To that end I believe a significant proportion of advertising as we know will be rendered unnecessary

    But I could be totally wrong….

  • Miki,

    re: “I am wondering though why you think there will be an eventual discovery that online advertising *doesn’t work*.”

    – We know this now. It’s sad I know, but many of us have been tracking advertising results for many years and there is a decline in the effectiveness of on and offline advertising.

    There’s always exceptions and some people who it works for, but they are the minority.

    It’s really not worth advertising much these days online – You can get all the traffic you need for free through discussions, social media, chat, blogging, SEO, PR, article syndication, and many other techniques.

    For example, I know a mechanic in Christchurch who said traditional paid advertising doesn’t work for them, so he put a cool car on Trademe at a high price to sell it. The price is high enough that nobody will purchase it, but the car is cool enough that heaps of people want to check it out. His business details are the contact details, so he gets a truckload of work leads every month. Meanwhile the car stays up for sale, and if he does sell it for the high price – he’s happy anyway!

    So basically ongoing free advertising!

    Let’s get creative people, just because advertising doesn’t work, doesn’t mean we can’t use cheap or free web marketing methods like this – We just need to think a little harder (a good thing).

    Here’s a few related posts about some of our stories re: marketing:
    http://snurl.com/3uk1f [Best Marketing is Free]
    http://snurl.com/3uk1o [Google Adword Pitfalls]

    PS: EVERY online business should read the ‘Purple Cow” by Seth Godin. It’s absolutely on the money. If you don’t read it you’re uninformed.
    http://snurl.com/3ujh0 [www_fishpond_co_nz]

  • @Ben

    didn’t realise you were such a digital native 🙂

    @Julian

    Great insights, ideas and links. Liked your blog too.

    I am a big fan of Seth Godin as well – just going through ‘Small is the New Big’ which is a great read.

    Maybe I am getting hung up on semantics but the view I would take is that all the other methods you have both described are forms of advertising. It’s just that they are below the line.

    I think a possible take-out is that buying paid advertising is a way to short-cut the process of building genuine customer connection. And we all know what happens when we try to take shortcuts.

    Does remind me of that great quote by John Wanamaker

    Half the money I spend on advertising is wasted; the trouble is I don’t know which half.

    http://www.quotationspage.com/quotes/John_Wanamaker/

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