Web 2.0 'no money down' model: heady, not bubbly

Data put forth in the piece, however, seems to suggest today’s Internet landscape does not reflect a bubble situation:

One key difference is that the volume of venture investment is much lower than it was during the first Internet boom's height. The amount invested in the first quarter of this year was just one-fifth the $28.1 billion spent in the first quarter of 2000, according to PricewaterhouseCoopers' MoneyTree report, which tracks venture investment.

Also significant is the lack of investor appetite for initial public offerings. Unlike the last round of online exuberance, small investors aren't likely to buy shares in an online pet store with a sock-puppet spokesman.

Not only is the dollar amount of venture investment a fraction of what it was in the first wave of the commercial Internet, many Web 2.0 “businesses” are free services, started with “no money down.”

As I discuss in “Web 2.0 financial success: Easy as 'two weeks and $700 bucks'?,” “Rocketboom: Web 2.0 'success' on $20 a day?” and “Web 2.0 monetization by Google AdSense, Where is the business model?”:

In the fast-track Web 2.0 start-up world, “business model” does not appear to factor into “stealth mode” or “public beta” or “soft launch” strategies. Many Web 2.0 start-ups that make Web applications and services available to the public for free, first stake their claim to a piece of the Social Web real estate, and then, sometimes as an afterthought, look to Google to “show them the money” through AdSense.

Once the 1990’s Internet bubble burst, the “back-of-the-napkin” business plans that captured VC funding in the dot-com era were exposed. In today’s giddy Web 2.0 world, the notion of running a “business” often does not even exist.

In lieu of revenue models, Social Web start-ups talk of unleashing cool applications for free. The first wave of the commercial Internet may have been based on shaky business models, but at least the Web was viewed as a place to make money.

Today’s Web 2.0 heroes boast about launching a new app over the weekend for a few hundred bucks. They don’t invest time or money, so they don’t think about trying to make money. Social Web start-ups begin as “public betas,” with new applications and services put out on the Internet for free. If a cool app gains traction with the hip MySpace demographic, then the weekend software developers start to understand maybe money is needed to run the show.

In this Google-centric world, Social Web start-ups turn on AdSense for a quick injection of cash flow.

The real test of the long-term viability of AdSense supported Web 2.0 start-ups, however, will be if they are able to be self-sustaining through their own paying customers, clients or advertisers.