Web 2.0: You Build, They Profit

All the talk about popular applications being pulled on the iPhone application store and possible application developer favoritism over at FaceBook reminds me of what I think of as Web 2.0 dirty secret.

In fact, I think it’s not a secret to anyone who spends much time watching the industry news as well as partaking in these services and sites.

You know when these companies are gaining billion dollar valuations, you know how those figures are arrived at?

They do a head-count of their “user base” livestock. Whatever the going rate for a warm-bodied user is, multiplied by their active registrations.

Perhaps there is a premium for payments, subscriptions, and so on. If I was doing the valuation I would much prefer to see some sort of income! But in most cases recently the price has been set by eyeballs, potential for future eyeballs, and some vague idea that ads might pay for everything. Sound familiar dotcom1.0 folks?

The fuel for all this activity is euphemistically described as “User Generated Content”. From the service owners point of view this means they build infrastructure, promote it, and watch the users create the real value.

Think YouTube, Digg, Squidoo, WordPress.com and any social network you could name.

Without users they have no content, without content no users. Without users, no value.

But you get the impression that they have a different view, that users are bottom of the food chain. A replaceable and value-less commodity. Numbers on a spreadsheet. Unless you are a Scoble or an Arrington they can treat you like so much dirt brushed from their $1000 Italian lofers.

Going back to the Apple and FaceBook application woes, doesn’t this seem like the same attitude?

Without these application developers both companies have less to offer end-users. With fewer options they have lower attraction or consumption, and therefore lower profit potential. You wouldn’t know it from how they act, though.

The lesson for the rest of us? If you play in someone else’s sand pit, expect to get some kicked in your face.

Posted on August 5, 2008 by Chris Garrett 
Filed Under Web 2.0

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