Web 2.0 business models

Some interesting talk percolating around today about Web 2.0 business models. Phil Wainewright has a couple of interesting posts about what will happen in Web 3.0 (nb: one thing I know for certain is that we won't be calling it Web 3.0!). In his first post, Phil posits three main layers to what he terms Web 3.0: API Services is the foundation layer, Aggregation Services is the middle layer, and Application Services is the top layer. In a follow-up post, Phil wrote that the main issue of Web 2.0 is a lack of business models. He doesn't believe advertising is a sustainable business model for most companies. I agree with that and indeed it's the main thing that critics of the Web 2.0 hype squark about: the lack of business models.

But there's big money to be made in Web 2.0. As Dan Farber pointed out today, online classifieds is a potentially huge market that has piqued the interest of Google, Yahoo, Microsoft, AOL and many other players: "According to JupiterResearch, U.S. online classifieds is forecast to grow from $2.6 billion in 2005 to over $4 billion in 2010."

Going back to Phil's point about the layers of opportunity in Web 2.0 (and beyond). Mashups is a current hot topic and many people are getting excited about the possibility of earning money by mashing up several services into one. I recently did a review of the top mashups on the Web today and was impressed by the quality and number of mashups and API services, from Virtual Places to mashingtonpost.com. But as Greg Linden pointed out today, the business model for mashups is still in question:

"Companies offer web services to get free ideas, exploit free R&D, and discover promising talent. That's why the APIs are crippled with restrictions like no more than N hits a day, no commercial use, and no uptime or quality guarantees. They offer the APIs so people can build clever toys, the best of which the company will grab -- thank you very much -- and develop further on their own.

There is no business model for mashups. If Web 2.0 really is just mashups, this is going to be one short revolution."

Wise words, but of course Web 2.0 isn't just about mashups. There are many other opportunities for web-based services that utilize aggregation, syndication, user content, and other characteristics of this era of the Web. Ken Yarmosh has taken a stab at defining Web 2.0 business models, putting companies into either of two buckets: technology-focused or network effects-focused. I'm not sure it's necessarily either/or and I suspect there are other types, along the lines Phil Wainewright has begun to outline.

Whichever way you look at it, there are a lot more opportunities on the Web now than there were even a couple of years ago. This is the point that Web 2.0 critics and morons like these overlook. It's all very well criticizing Web 2.0 and the hype around it, but what I find amazing is that the critics are using these very technologies to launch their attacks (blogs, syndication, user content, aggregation, etc). Business models? Still in flux, no doubt about it. But opportunities are out there.