In absolutely no order, because in Web 2.0 we didn’t believe in accountability and numbers aren’t kewl!

21- Is No Barrier To Entry A Good Thing?

There is a saying that states: “greed is a permanent, fear is temporary”.  In greedy times, VCs and buyers pay whatever it took to close the deal.  In fear times, that isn’t the case.

Much the same way that loose money and easy credit created the real estate and housing bubble, open source software and cheap hardware created an environment of over-supply of me-too products that have absolutely no bargaining power in M&A or fundraising.

Exasperating matters is a serious over-supply or clones.  What clones?

20- Carbon Copy Product Ideas: Clones and YASN

YouTube, Revver, Metacafe, Daily Motion, Break, Veoh etc., are just some of the video file sharing social networking sites.  Together, these ended up raising hundreds of millions of dollars, but the sad truth is that apart from YouTube’s gargantuan $1.65B exit to Google, none of them will really generate the kind of returns that VCs expect.  None of them did during Web 2.0 gaga days, so they sure as hell won’t now.  More on the eventual shakeup in this market here.

Video file sharing sites were not alone: think of all of the social bookmarking tools: Digg (itself an inspiration derived of Del.icio.us) spawned hundreds of clones.

19- Excessive Fundraising

Easy money manifested itself in another way: excessive fundraising.  VCs generally look for 10x returns.  Take practically any VC funded company and work out the numbers.  The result is eerily the same: no real exit likelihood.  The end result is a downroundor worse, a cramdown round where the entrepreneurs and management are washed out so that the financiers get their returns.

Why does Seesmic need $12M in funding?  To rid out the tough times.  Ride out to what?

In our space (video content): I fell off my chair when I saw some peers raising $10-25M of dollars.  That just puts them in a tough spot.  More power to them, for sure, but I am not sure that was necessary, or wise.

18- Excessive Disclosure: VC Bloggers

Let me be clear here: as an entrepreneur, I think it is absolutely amazing that VCs blog… until I raise money.  The day I raise money, I am not sure VC bloggers are a positive.  I do not have VCs, but to be perfectly honest, I think if I did, I would hate to stop by their sites and read anything or see a link to a given article.  Knowing me, I’d think: “is this addressed to me/our company?”  VC bloggers add transparency to the pre-funding stage and sources like AsktheVC.com, TheFunded.com, etc. are all great resources, but I think VCs need to get back to the reality that the VCs should stay in the background and let the employees be stars.  Not just the CEO, I am talking all employees…

Maybe it is just me… but I cannot think of anything more uncomfortable than a VC subconsciously talking to his portfolio companies via his blog.

17- The Cookie Cutter Business Plans: Monetizing Via Google’s Ad Sense

VCs truly, truly showed their lack of understanding of advertising models by assuming that any property, once scaled, could be monetized via Google Ad Sense.  Truth is, networks don’t make money for publishers, they make money for networks.  Google’s Ad Sense was the most black box network out there, and it comes as no surprise that while Ad Sense made money for Google, it never really made money for partner sites.  So yes, while Google’s total Traffic Acquisitions Costs were anything but immaterial; individually, sites that relied on Google for monetization are now in the deadpool pile.

Sad, but true.

16- Building a Business on Another Company’s API

Some people, like Slide’s Max Levchin, bet the house on Facebook’s API.  Others, like Lookery’s Scott Rafer, used the platform to launch a product but then got wiser.  Both men are probably much smarter than I am, but the fact is: only a sucker totally builds someone one another company’s grid.  It’s one thing to use other networks (note plural) to build reach, revenue and relevancy… but to fully bet your future on one company is ridiculous.  Especially if that company is grasping at straws for its own business model.

Please note: I myself fell for this, initially.  Back in 2005, before we launched WatchMojo.com (what we focus on now: video content), I launched MetaMojo.com on Yahoo!’s API.  That was dumb, so we migrated to something proprietary on open source search engine Nutch.  The point is: use an API to test out your idea, but don’t build your business on it.

15- The Bet on UGC and Social Media Turned Out to Be Busts

Yes and no.

Social media has revolutioned publishing, but it will be a mere footnote on marketing and advertising.  More on this in these related pieces:

- Connecting the Dots: Why Social Media Fails at Generating Revenue
- Why Social Media and Advertising = Fail
- Dark Cloud, Meet Social Media. Social Media, Meet Dark Cloud
- Social Media Hype Train Continues
- When Will Social Media Get It?
- Social Media Growing Pains

14- Cloud Computing Distorts Adoption

Back in the days of downloading clients, only those that actually cared about a given product or service would download it, and the subsequent stats would help the makers of the product refine and fine-tune the offering to ensure success.

This was clearly an obstacle to adoption, but one ironic result of cloud computing is that anybody can
“adopt” for an instant a product or service, but they will probably never return to it.

Cloud computing in of itself is great, but I am not sure it’s all positive, or rather, comes with no negatives.

13- No Diversification

Most Web 2.0 companies had a simple strategy: grow the audience (by way of APIs, when handy) then monetize it via advertising.

That was the public position, internally, they did not care about sales, they cared about selling to a greater fool.  Had they looked at diversifying revenues, then they would have

12- Give Away the Cow?  Good Luck Trying to Sell Milk

If lack of diversification was a problem, then the fact that many of the companies were giving everything away meant that they were doomed upon arrival.  Some coined the freemium notion but that is bogus, the general rule of thumb is simple: if you give something away for free, you cannot go back and charge for it.  If and when you try to charge it, some hapless VC will fund a clone and try to undercut your efforts.

Pricing strategy has always been consistent: start high, slide low.  The notion that you can start to charge nothing and go back and charge some people for something is as crazy as the craziest dot com story.

11- “Revenue is Noise” 

Really?

Jeff Clavier will either go down as one of the more successful Web 2.0 investors or will eventually be remembered for saying that “revenue is noise“, which then was and remains to this day ludicrous.  As an investor in largely nonsensical startups, I would see why he would say that: don’t focus on revenues and cash flow, run out of money, sell more equity to investors; “everyone” wins.

However, as an entrepreneur, I think that is nonsense, to quote one of the best entrepreneurs around (Maxim’s Felix Dennis): “equity isn’t the most important thing, it’s the only thing”.

I met Jeff briefly, seems like a nice guy, obviously a brilliant investor… so I am hoping he will be remembered for something other than this quote.  Hint: he will.

10- Not Recognizing a Good Deal: Metacafe Turns Down Yahoo!’s $200M offer.

Metacafe falls in the “video file sharing social networking site” space which includes a limited pool of 1,000 or so sites.  Revver, one of the earliest competitors in the space sold for a whopping $5M after raising $12M.  I am not a math guy, but I think not selling to Yahoo! was a bad idea. Yahoo! has a tendency to overpay for things they should not but balk from things they should pursue.  Case in point:

9- Questionable Investments: Yahoo!’s Crazy Deal with Right Media

Yahoo! bought 20% of Right Media for $45M, valuing Right Media at over $200M.  But then in the same calendar year, it paid $680M for the remaining 80%, [over]valuing the display banner exchange at over $800M.  I met Right Media’s founder and angel investors and think they are all geniuses, so I hope nothing gets lost in what I am about to say: but Yahoo! showed their utter disregard for investors with this deal, in what was a sign of bad things to come.

Either Yahoo! was dumb as ass in the initial deal (you don’t think Right Media would have agreed to sell 100% for $250M at the time of the initial deal?) or they were dumb as ass at the tail end of that corporate development process.

Hey, just some candor for you all.

8- The Echo Chamber - One Word: Twitter

Broadly speaking, Twitter makes the list for one simple reason: echo chamber.  Some of you might point to the fact that Britney Spears began twittering this weekend and this spells mainstream spell-over, but I don’t buy it, not one bit.   After all, Ashton Kutchner is dabbling into new media, but the money isn’t there, and with the slowdown I fully expect Kutchner to lose the appetite to go small.

Twitter represents the fact that many Web 2.0 were idiosyncratic investments: of interest to the echo chamber in Silicon Valley, but pretty darn useless to main street.

If you want to craft a successful ad slogan, you don’t focus on Madison Avenue…

If you want to produce a successful movie, you don’t focus on Hollywood…

If you want to build a successful tech product, you don’t focus on Silicon Valley…

Specifically: Twitter can be an e-commerce platform, but an advertising one it won’t be, just like all other communications platforms (email, IM).  This being said, I am shocked that Twitter did not sell in 2007.  What is that saying: buy on rumor (hype), sell on news.

I think the VCs at Twitter are privately kicking themselves for not selling.  Even if Twitter develops a business model (it very well might develop a model, but it will be unlikely to be successful), they will never command the kind of giddy air multiples that we were getting in the past few years.

More on this in Twitter’s 140 problems.

7- Cornering Yourself: Facebook’s $15B valuation

In 2007, a lot of us began to think that despite the challenges and clear obstacles, Facebook would one day be a publicly traded company (ticker suggestions: FACE?  FCBK?), but then Beacon bombed and unlike MySpace that embraced a media strategy, Facebook dived in the platform space.  That in of itself is not unwise… after all, only one technology company has been a successful ad-supported one: Google… and Facebook, my dear, is no Google.

The problem was, while Google at least in its early days demonstrated some modesty (”if Ad Sense does not work we can throw up Doubleclick ads and make money that way”), Facebook went out and began to believe its own PR (”every 100 years, advertising changes”).

Then hubris turned to utter greed: it accepted a $240M investment (not dumb) at a nosebleed valuation of $15B (dumb).  To MSFT, it ensured that no one other than MSFT would buy Facebook; to Facebook, it meant that no one but MSFT would buy Facebook.

In other words, FCBK = FCKD!

6- Greed: Yahoo Turns Down $31/share, Falls Below $12 Six Months Later

If Facebook’s $15B valuation deal will be reminiscent of the fact that Priceline was worth more than the entire transportation industry on the day of its IPO and an example of greed and hubris, then what can be said of Jerry Yang’s disastrous judgment to give MSFT the one finger salute?

In late-January 2008, MSFT offered $31/share - or $44.6B - for Yahoo!  That same year, Yahoo! fell to less than $12 per share.  As fake Steve Jobs author Daniel Lyons asks: why is Jerry Yang still in charge at Yahoo!?

5- “The TechMeme Economy”

Techmeme is one of the best services out there, so this entry has little to do with TechMeme but with what TechMeme created: short attention span but no follow through.

Sometimes I get the impression that companies vie for a “day-of-launch” spike but do little else to maintain the momentum.  The same can be said and applied to Tech Crunch, frankly.

4- Wireless Was a Joke, Remains a Joke

Wireless was a joke in Web 1.0 and a disaster in Web 2.0.  Helio burned through $560M of funding, only to hit the deadpool.  Who does that?  How come these people are not in jail?  Who are the VCs that let this happen?  Are we munching on crazy pills?

This just might explain why Apple’s iPhone is garnering market share at an alarming rate.  It takes an outsider to shake things up.

3- Tech Blog Overkill

I personally enjoy reading most of the sites in the tech blog networks: Gawker’s tech site Valleywag, Tech Crunch, Paid Content, Venture Beat, Giga Om’s sites, be it NewTeeVee or GigaOm.com, Alley Insider, as well as indies such as CenterNetworks.com, but people, is this necessary?  Is this not overkill?  Are we actually trying to tell advertisers that the readerships of these sites are all that different?  What is loopy about this argument is that one company, Federated Media, sells inventory on most of these sites.  Now that is a joke!  Paid Content wisely exited the market with a $30M sale to UK-based publisher Guardian.

Frankly, Paid Content’s behavior is reminiscent of Warren Buffett’s adage of “buy when others are showing fear and sell when others are displaying greed”.  Rafat Ali launched the site in April 2002 when no one was taking digital media seriously, and then sold his network right before the massive sell off.

I guess once print companies began to launch tech oriented blogs, then you knew the market had peaked.  This reminds me of the story of John F. Kennedy’s father selling his shares right before the stock market crash of 1929 when the shoe shine boys were doling out stock market advice.

2- It’s the Supply, Stupid

I don’t care what you are selling, there is such a thing and diminishing returns and if your supply is way greater than demand, you will lose your shirt.  Connecting the dots, User Generated Content made supply explode, but the advertising community was too smart to fall for it.  There just won’t be enough “squares to spare”.

1- Must Everything Be Freaking Social?

Web 2.0 nonsense didn’t just affect startups, it also hit big media firms, too.  From questionable investments and acquisitions, to network envy, it seems big media took one step forward, three back.

Just one example: network envy.  After the meltdown of 2001, it made sense to see networks pop up right and left.  Ad networks succeeded because they were independent upstarts that posed no threat, that is how a firm like SpecificMedia, for example, got inventory on top sites such as SI.  Over time, off the radar, these networks grew and subsequently made a killing:

Blue Lithium sold to Yahoo! for $300M.  Right Media sold for over $800M to Yahoo!  Google bought Doubleclick for $3.1B.  aQuantive (a more diversified online media firm) got acquired by Microsoft for $6B (I owned shares).

So guess what?  Old media began to salivate and launched their own networks.  They will all fail, most probably.

Oh, look, that was 21 dumb things… but who’s counting right?  This is Web 2.0 after all: numbers are so uncool.

Hope you enjoyed the list. 

- What are we missing?

- And what are some of the great things of Web 2.0?

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