Web 2.0 Blues: Money and Models Running Out

Just in case beleagured media companies thought the great recession of 2009 was picking on their houses only, news from the young-upstarts world suggests that the best and the brightest of Web 2.0 may be set for a fall in this downturn, too. VC investments in social media and the Web’s collaborative powers (a.k.a. Web 2.0) dropped 47% in Q3, according to VentureBeat. Only $220 million went into next-gen startups, down from a peak of over $500 million in late 2007. Investment hasn’t fallen off a cliff, since current levels match 2006 VC interest, but other sources report that money is starting to divert into clean tech and biotech companies in Silicon Valley. One has to wonder if media simply has become toxic for investors, given the absence of clear models to profitability in the digital realm and audience fragmentation patterns that few companies have addressed convincingly.

As if to underscore the problem, one of the poster children of Web 2.0 technologies, BitTorrent, seems to be devolving into an emblem of what went wrong with a lot of second wave startups. NewTeeVee reports that the peer-to-peer (P2P) file sharing tech innovator is losing one of its founders, Ashwin Navin as he starts a Valley incubator. Meanwhile, the inventor of the widely used but poorly monetized technology, Bram Cohen remains, but with the relatively new CEO Douglas Walker has also resigned, according to paidcontent.org.  Like many second-wave tech start-ups, BitTorrent rifled through several business models, from B2B tech infrastructure to consumer-facing media download service to its current iteration as a games distributor. Herein lies the tragedy of Web 2.0 plans we may see played out again and again. Tech geniuses created wonderful toys that no one knew how to control or discipline into businesses. As social media, widget and streaming media plays all chase the same dwindling ad dollar in the coming months, expect to see a similar scenario played out.