Steve Rubel asks a good question -- if the Web 2.0 blogging community is financed by ad revenue from Web 2.0 start-ups, could it lead to an incestuous economic tangle that would go ker-flooey in an economic downturn?
[from Micro Persuasion: The Web 2.0 Economic Conundrum]Quietly, an entire Web 2.0 economy has blossomed. The Web sites and blogs that cover Web 2.0 - sites that I really love - are largely supported by ads from startups that also are hoping to capitalize in the rising interest in online advertising. This creates a vicious cycle that's unhealthy for the earning potential of bloggers who cover Web 2.0.
Once again I turn to history as my guide. Back in 2001 Yahoo faced a similar problem. It was too dependent on dot-com advertisers. Yes, times were different then. Yahoo was a big company with big infrastructure. Today, to publish, the cost of doing business is zilch.
However, what's not different is that startups advertising on startups spells trouble. You can't sustain momentum. If the economy hits a speed bump it will upset the apple cart enough to cause the Web 2.0 advertising economy to sink. And while it won't spell the demise of these popular blogs, it might mean these bloggers will need to return to their day jobs.
The solution, just as with investing, is to diversify.
Kent Newsome heaps on, along with some others.
I think we need to consider this in the context of the larger economic scene. Web 2.0 is not a closed system: the venture funding is pouring in from other sources: institutional investors, well-heeled individuals, and so on. The VCs put the money into the start-ups. The people looking at the ads are not all working at Web 2.0 companies: they work at companies small, medium, and large all over the world.
And just important is the growth of this new Web. New blogs coming online, new users of social tools signing up, people with their first cell phone cameras uploading photos for the first time, small companies shifting their invoicing from conventional to online solutions, traditional media -- like newspapers -- falling like a rock while advertisers of all stripes are shifting billions of dollars from conventional print campaigns to online.
The biggest advertiser on my blog in recent months has been HP, which I would not characterize as a Web 2.0 company at all, but they are primed to eclipse IBM as the #1 IT solutions company in the world. Although at /Message they have only been flogging their printers, so far.
There may be a tight cabal of blogs that meet Steve's concerns, like one of those closed glass balls with two brine shrimp and a thin cloud of algae: a closed ecosystem subsisting complely on photons, where the shrimp eat the algae, and the algae live on the shrimps' byproducts.
But Web 2.0 is a revolution that is not just changing the way that Web 2.0 companies -- and a few hundred bloggers -- work and interact, it is changing the lives of everything that it touches. Certainly, not all at once, but it is happening pretty fast, and all over the place.
Steve's call to diversify is well-intentioned, but I think it's actually unnecessary. The economics of the revolution -- better, cheaper, easier-to-use software that matches our lives and needs better -- will cause the adoption curve to accelerate, bringing diversity of use -- more individuals, other companies, other functional groups in those companies, larger adoption in those companies -- so that the diversification in the market will happen, below our feet, and then later on, in the blend of ads on our blogs.
Yes I agree with you, advertisers of all stripes are shifting billions of dollars from conventional print campaigns to online. I guess this is the way business will be done in the future.
Thank you for sharing this story with me !
Posted by: Maria making pictures | August 24, 2006 at 08:26 AM
Isn't one of the characterizations of Web 2.0 companies that they have a small amount of funding? It's not like the first bubble companies where there are many companies with tens or hundreds of millions in funding fueling a giant ad bubble.
Posted by: Chris Neumann | August 29, 2006 at 10:28 PM