Thinking About Starting an Online Business? Read This…

While there is much debate about exactly what defines the current Web 2.0 phenomenon, one thing is clear: New Internet start-ups are launching at a rapid pace. As a result, comparisons to the original dot-com era are inevitable and at least worthy of discussion. By looking at the current growth in Internet start-ups in light of the lessons learned near the turn of the century (that sounds weird), we can get a sense of what would-be Internet entrepreneurs should consider when attempting to launch their online venture.

With the exception of the boom and bust of the late 90s, there has never been a better time to be an entrepreneur with a great new online business model. But it’s not necessarily the best models that get the funding. The tendency of venture capitalists and other investors is to pursue models that have proven to be successful. As a result, the current landscape is rich with copycat business models that may not be adequately distinct to capture significant market share. Skeptics are pointing to the likelihood of another Internet bubble that is destined to burst in much the same way that the original Internet gold rush ended. But that does not mean that true opportunities for success are not abundantly available.

Where Yahoo! and eBay represented the inspirational success stories of the original Internet boom, MySpace, YouTube, and others have become the iconic successes of the latest wave of Internet development. During the original boom, a handful of entrepreneurial triumphs came with countless defeats and billions in lost venture capital. But while the original boom was fueled by a fascination with technology and, to a large extent, ignorance regarding the realities of online business models, business owners and investors are approaching the new growth period with caution. In contrast to the late 90s, web site infrastructure and network platforms can now be implemented inexpensively and without the build-out delays and technology shortcomings that doomed so many start-ups nearly a decade ago.

In many ways, one can view Web 2.0 not so much as a new online paradigm or a new generation of Internet business development, but more as a natural maturation of the Internet as a medium for information sharing, social interaction, and ultimately commerce. The basic functionality of web sites such as MySpace and YouTube existed in the late 90s, but the bandwidth and the audience necessary to make such ventures successful had yet to emerge. Practically every person in this country can now access a broadband Internet connection, whether from home, work, school, or the local public library or Internet café. Add to that the widespread use of PDAs, laptops, Blackberries, and other portable Internet devices, and it’s easy to understand that more people are spending more time online than ever before. And Internet usage and the speeds available to users are only going to increase in the years to come. As a result, the logical conclusion is that the Internet as a marketplace has grown and there are more opportunities for businesses of all kinds to succeed. While it’s still relatively early in the “adolescence” of the Internet, many of the new business models seem to be adhering to the same fundamental formulas for success – and this is where the problems arise.

Underlying the current growth period in Internet start-ups are the online phenomena of social networking, user-generated content and online advertising. Web sites have evolved to become destinations where users are encouraged to share their personal experience – their ideas, opinions, and any other uniquely personal information that they wish. As a result, there has been a huge boost in the amount of content being generated on the Web. The boom in user-generated content has helped to create massive amounts of web traffic for many web sites. When the traffic numbers are high enough, a web site can generate significant revenue through advertising relationships such as Google AdSense. Sites that have successfully implemented this formula are enjoying great success. But having a web site that will generate lots of visitors that will contribute free content and make money via advertising is not really a business model.

When it comes to assessing new companies and the business climate that surrounds the current Web 2.0 phenomenon, no one does it better than the Skeptic at Dead 2.0. His blog post titled “11 Suggestions for Not Being a Dot-Bomb 2.0” really hammers home the fact that new businesses will only succeed if their models are solid. The first two suggestions are as follows:

• Have a revenue model, right now. Not something you’ll figure out when you get some traffic. Oh, and it cannot be 100% based on AdSense or being an Amazon Affiliate. It is fine to be ad-supported, pay-per-something, platform licensing, or anything that is predictable and based on existing economic models. Revenue matters, and if you aren’t thinking about it, then what you have is a hobby not a business.

• Be a complete business, not just a feature. Social networking on its own is done (despite recent entrants). MySpace and one or two others will survive, and they will get wrapped into bigger services. If you want to be a shopping site that incorporates social networking and a wiki, okay, that’s something (not much, but something). And it is okay to be a piece of technology that will get licensed or otherwise incorporated into other companies’ offerings. However being a “better” bookmarking site is not enough.

The message is right there. If you’re thinking about launching a Web-based business, make sure you’ve got an actual model for sustainable success. No one knows how long it will be “cool” to hang out on a web site and share information. No one can tell you which blogs will be popular in two years – or if blogs themselves will be popular. Make sure you have a useful product or service that helps people solve an existing problem. In the current online climate, it’s very tempting for entrepreneurs to “create” a problem that they easily “solve” with some regurgitated technology or concept.

We watched it happen the first time around – in the rush to launch in a hot marketplace, entrepreneurs and investors wasted countless resources on ideas that were never likely to succeed. People still don’t do their grocery shopping online. In short: opportunities for success are out there and strong business models are still required.

Tags: ebay, Internet boom, Internet bust, Internet start ups, myspace, online business, web 2.0, Yahoo!, youtube

Share This | Posted in Web 2.0, Self Employment | No Comments