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Only nerds ask: “Is the Web 2.0 bubble collapsing?”

There’s been some conversation recently on Web 2.0 as a bubble, and whether or not it’s going to pop in 2007. Here’s the coverage from Techcrunch, and here’s one on Bubble 2.0 from the WSJ. It seems to be driven by the entire “Make your 2007 predictions” meme.

Related to this topic, I’ve had a couple folks ask me what kind of company I’m looking to start – they ask, “Are you thinking of something in the Web 2.0 area?” usually followed by “… because that’s really crowded.”

Web 2 point what?
Here’s my take on the topic: Classifying all the Internet companies created in the last year or two as “Web 2.0” is too simplistic, and thus, asking about trends within Web 2.0 is the wrong question to ask. Considering that people still disagree on what the Web 2.0 term means, and how vague and all-encompassing it seems to be, it’s pretty funny to think you could say anything about all the companies under that umbrella.

So instead, the questions should be about what the company does for customer, industry the startups are in, how they make their money, and what limitations exist for scaling up. The questions should be about what problems they are trying to solve, not the technology that supports their websites. Zillow is not a Web 2.0 real estate website that incorporates AJAX and mapping. Instead, think of it as a tool that lets people look up the value of houses before they’re going to sell or buy, and/or fantasize about where they’d want to live. That’s the change in perspective I’m talking about.

What kinds of areas might be in trouble?
So if we take this perspective, one might still ask what customer problems are overfunded and bubble-like. I might speculate that there are quite a few out there, but there are also huge untapped markets that present large opportunities.

From this lens, I might advance that the new “media sharing” startups – ones that let you post pictures, videos, etc. – are in trouble unless they are already big players. There are lots of companies, undifferentiated technology, and winner-take-all dynamics. Furthermore, the advertising/monetization of these sites is really difficult, and as the ad networks and advertisers get smarter about conversions, their revenues may fall.

I’m sure you could theorize the same thing about lots of “blogging features” that are coming out as whole companies, when they are instead very small add-ons to existing blogging infrastructure targeted at a small, tech-savvy audience. Another soft spot consists of social networking sites, some of which are too targeted and niche, and others which are too generic and incapable of building critical mass.

Even so, these categories will have tremendous innovation in the next couple years – I just wouldn’t want to be someone starting a company in there ;-)

But would I say the same thing about industries that NEED innovation, like real estate, health, personal finance, education, and other huge consumer industries? No. I think these industries are still mostly untouched by new technologies, and deserve to be examined closely by entrepreneurs with their new Web 2.0 technology toolkits.

We should chance our focus to people, not technology
The key is to think about the problems people are facing, not the tools we use to solve them. This will shift the conversation away from Web 2.0 and towards the needs of customers.

We, as technologists, have a deep toolkit of techniques to solve peoples’ problems. We know that AJAX can make richer interfaces, when those interfaces are relevant. We know that social features can be very powerful, when the problem demands it. And we know that with the proliferation of digital cameras and broadband, the Internet’s as much about video as text.

But at the same time, by broadly generalizing across Web 2.0 is just not smart enough to capture the wildly different dynamics within each industry. So let’s start segmenting Web 2.0 companies based on target audience and application, not technology platform.

UPDATE: I missed this
comprehensive coverage of Web 2.0 carnage
blogged at VentureBeat.

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