Are We Heading Towards a Web 2.0 Bubble?
One of the best indicators of how the recession has changed our economic lifestyles is the rise in entrepreneurship. With colleges, internships, and traditional career paths letting down the brightest minds today, a lot of (young) people have turned to making it on their own terms: “No Jobs? Young Entrepreneurs Make Their Own,” reads one prominent New York Times headline, reporting on college grads essentially forced into a self-started business. “Entrepreneurship is the new college” comments a Washington Post piece. Forbes calls it “conspicuous creation,” arguing that it’s a demographic, not a geographic phenomenon, as grads are leaving college with great ideas but also some of the worst employment rates worldwide.
This all probably reached its apogee when Peter Thiel, creator of PayPayl and early investor in Facebook, offered 20 kids $100,000 each to drop out of college and be their own innovators & path-makers (though Mr. Thiel has since become a college professor at Stanford). A lot of this drive, arguably, has been underpinned by the internet, the great equalizer and offerer of opportunities. Within that realm, apps or things-related have been the dominant market force. Do you want personalized news? Check. Do you want to meet people in your neighborhood? Check. Do you want esoteric bargaining, communities, functionalities? Check, check, check. If you’re interested, there’s an app for that, so they say.
Apps and their not-so-distant relatives are potentially quick and easy to make and pivot on, painless to distribute, and very accessible, which reads like a successful formula. Their rise, however, coincides with another rise: that of “Design Thinking” as opposed to “MBA-thinking”. The Toronto University’s Rotman School of Business recently placed MBAs and Designers in competition to design a product or service for business problem, and found that designers took all the top places. Their storytelling, empathy, production values, and customer driven approach won over all the judges; designers simply made and presented better solutions. However, none of them had any longevity: almost none of the designers were able to articulate a clear sense of growth or profit-generation, something hardwired into MBA thinking (that is, how do you make money from your idea?). This problem extended outside of the competition and through the entire design portfolio.
So let me pause to sketch out a scenario: a brilliant kid (or group) makes a new functionality app of some kind, good-looking and very usable, and releases it for free into the wild. Early adapters rejoice like it’s the second coming of Christ, a free app or platform that does exactly what they wanted. Growth rates spike and everyone wants a part. Businesses get the drift of this, and churn out their own clones or variations, trying to capitalize while the going is hot; these usually aren’t free but get the late comers who still equate “cost” with “value”. Those usually burn, of course, and the free original app continues to gain the leftover market share, putting an additional strain on the system, which has to be subsidized to survive. That is, it survives by being bought out. Google’s acquisition of Youtube was the perfect example of this (and Google is still losing money on Youtube because they can’t change the “free” rule). Twitter is another example, still struggling to find profit despite its web prominence. So is Instagram, recently bought out by Facebook. The web has primed us to expect everything free or ridiculously cheap, so they say.
Two recent cases in the news make me even more worried: the aforementioned Instagram buyout, and the recent patent battles between AOL-Yahoo!-Facebook-Google-Oracle-Apple. These worry me because they’re part of a bigger trend where the ‘big four‘ (Apple, Google, Facebook, and Amazon) attempt to make web environments. They don’t want to be on the web, they want to be your web. I mean, what use are five different check-in apps geared at slightly different functionalities, when you can have them all running as one in some sort of Google or Facebook ecosystem? Why run Groupon or a clone as a stand-alone project when you can run it with the efficiency of big data through the big four’s systems? Siva Vaidhyanathan, author of The Googlization of Everything recently drove this point home in an NPR debate:
Facebook and Google and Microsoft and Apple all wish to be the operating systems of our lives. They’re explicit about this. They don’t just want to be on the web because the web is 20 years old, and it’s actually kind of creaky. What they want to do is be there with you all the time in your glasses, in your pocket, in your purse and on your mind always. They want to be your personal assistant. There’s quote after quote after quote from every CEO of every one of these companies that that’s what they want.
This goes back to the story of young entrepreneurs and the lifting hand of venture and angel investments, where every millionaire throwing money has his hand somewhere in or near the honeypot of the big internet shakers. Apps and platforms with no profit margins are being sold to create patent or functionality portfolios (to stifle the competition and grow/further trap your own networks of users) and to amass big data, letting companies more efficiently analyze further investments, as well as where/what ads to place, and how to reach a user (or create a customer). The age of big data, so they say.
What becomes really scary is when those angel investors and venture capitalists begin throwing millions (or, at least hundreds of thousands) at early stage start-ups promising to be the next big thing, preferably with sharp design and a nonce name (last year it was an “adverbly” name; the year before, a name truncated by an “internation.al” domain), but which in reality are merely adaptions or modifications of existing services for a slightly different operating environment.
Unfortunately, the market is being over-saturated with all these apps. To take one example, there are so many news-sharing platforms out there that it sometimes feel like I’m trying to pick out a golf club: I only need two (one for large networks–Twitter, my driver–and one for close networks–Facebook, my putter), but I’ve got hundreds of variations to choose from. The ‘Add-This’ applet at the bottom of the page offers you over 300 ways to share this post. Everyone and their mother has some sort of generic app out. Heck, this insanity probably reached climax when Planned Parenthood launched an app where you can ‘check in’ to show where you had safe sex. Oh my god.
In many instances, “early stage funding” means funding without a viable product out yet, or funding that captures such equity (albeit distributed amongst numerous investors) that people might be just outright selling their businesses. As a researcher I’ve noticed the “start-up and sell” portfolio listed on too many bios: “Here is so-and-so, who started X, Y, and Z, and sold them all for a year later for millions. You should trust him!”
And that’s where a lot of people will be getting burned soon, because that’s what happened in the first internet bubble. Sure, the game is slightly different now: this isn’t fly-by-night scamming yet, but we’ve got to be careful on what we’re getting ourselves into. If we’re not moving towards a general economic collapse of the app-based web interactions model, then we’re further strengthening the strongholds of Apple, Google, Facebook, Amazon, and Microsoft in their acquisition-based growth and consolidation. But is that a sustainable model? Is that even what we want, in terms of a free web? Bubble may be a bit too strong a word, but I reckon we’re going to see some radical changes in the near future. The road to hell is paved with good intentions, so they say.
Roman Kudryashov
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