Vinny Lingham’s Blog

Nope, not the chocolate (South African joke). TechCrunch is having the inaugural “Crunchies” awards and you can nominate for your favorite Web 2.0 Startup.

Awards like these certainly help give startup companies more exposure - especially ones that deserve and need it - so nominate away!

I found this on TechCrunch today - and I just had to share it!

Sad thing is that most of those 23 year old CEO’s & CTO’s won’t even know who first wrote and sang the background song

Update (15 Dec): YouTube video removed (long story) - replaced with Daily Motion video.

I’m getting tired of hearing people saying that Web 2.0 is in a bubble - it’s clearly not the case, in my humble opinion. The Internet market has matured remarkably since 2000, and even though there are failures, such as Teqlo - which recently announced it was shutting down - this is no different from other industries out there.

The Internet sector has built a number of safeguards into it, including the fact that startups still have to go through the usual channels - concept - angel - series a - series b - etc. This self policing system is weeding out unsustainable business models quickly, and if a startup cannot show further traction after a round of funding - it’s most likely going to fold, unlike back in 2000.

VC’s are injecting around $3m in the average Web 2.0 startup - this is conservatively about 18-24 months runway, and it’s make or break. The ones that make it, get through to another round of funding. The bubble occurred when VC’s started to think “this time it’s different” and started making $25m series a funding rounds the norm - which meant that Series B rounds were forced higher, and so on. This is certainly not the case today.

Also, the cost of testing business ideas and models have dropped dramatically, which is allowing many more startups to pass through major development milestones whilst still inside the angel funding rounds - this is just making the natural selection process more efficient by allowing more companies to get to the point where VC’s are interested in playing the numbers, if the development up until that point has been sound.

Statistically, they say 4 out of 5 startup businesses fail - this number is flawed, as it is the average for all industries - and if you take the average IQ of the population in general at 100 - it’s even more skewed in our favour when you consider our industry. I would think that people in the Internet sector have above average IQ’s and business acumen, in general (although sometimes I wonder ) - so that chances of success are much better.

If VC’s can invest $30m into 10 companies, and 5 of them go through the next round of funding - they’re on track for great returns, statistically. Next year, we’re going to see a lot of companies run out of money, from investments made back in 2005 - which are running out of cash now, with no traction - but that’s exactly what’s going to create a check & balance in our industry. This does not mean there is a bubble bursting!

The real question is whether or not the successful companies, such as Facebook, Skype, YouTube, etc. are overvalued. My gut feel that in the short term they are, but in the long term, they are probably undervalued. The great things is that these successes, ensure that our sector keeps ticking along, and investors are willing to make the investments, knowing that the potential upside exceeds the risk factor. Remember, as long as these startup companies are opting for corporate M&A activity as an exit, as opposed to IPO - the broader market is shielded from the buying frenzy we saw in the late 90’s, and this greatly reduces the chance of a bubble across the sector.

I found Michael Arrington’s video last year dealt with the questions: “What is Web 2.0″ & “Are we in a Bubble?”

This is a great video - even though it’s over a year old! Question 1 has largely been answered - and the jury is still out on the second question :

Are we in a Web 2.0 bubble? I don’t think so - for various reasons. What are your thoughts…

Rubicon Consulting has just released a White Paper, entitled “The Growth in Web Application USage in the US“: “Status and implications for the tech industry September 25, 2007 Summary: Adoption of web applications is moving faster than most observers realize The rise of web applications — websites that replace the functions of a software program that was traditionally installed on a personal computer”.

This echoes much of what I wrote in my post about why Web Applications are superior to desktop applications - there is a paradigm shift underway.

Summary: Adoption of web applications is moving faster than most observers realize

The rise of web applications — websites that replace the functions of a software program that was traditionally installed on a personal computer — is one of the hottest topics in the tech industry. Huge numbers of “Web 2.0” startups are competing for user attention, and many observers predict rapid growth for web applications.

But most of the analysts refer to web application growth as something that’s going to happen in the future. The reality is that web app usage has already stretched far beyond early adopters, and is moving rapidly into the mainstream of US home computer users. A recent survey, conducted by Rubicon Consulting, showed that more than a third of them already use at least one web application on a regular basis. Students are moving especially fast, with more than 50% using web applications.

Other key findings of the research included:

* Adoption of web applications varies tremendously by category. E-mail and games are the leaders at the moment. Other categories, such as word processing and spreadsheet, still have extremely low adoption of web apps.
* Web applications displace traditional application usage. Among people who use any web applications, those apps consume about 40% of the user’s total application usage time. So web apps are already displacing traditional application usage for many people. This trend is very likely to cut into sales of conventional applications over time.
* Security is a looming problem. Fear of security problems is one of the biggest barriers to further adoption of web applications.

Implications for the industry

To web app companies: Users are incredibly practical; the products must be as well. Although the tech industry spends a lot of time drawing distinctions between traditional software and “Web 2.0” apps, computer users don’t care. They just want to solve their problems. Since virtually all US PC users have a web connection and a browser, if a web app solves their problem, they won’t hesitate to use it. So the barrier to adoption for web applications is extremely low.

But this also puts important responsibilities on web app developers. The research didn’t detect any significant group of people who are biased strongly toward adopting web applications for their own sake. Again, they just want their problems solved. If a web application isn’t better than a traditional software app, or doesn’t solve some new problem, most people won’t adopt it just because it’s on the web.

Web app companies need to ensure they solve real-world problems that significant numbers of people care about, and they need to communicate those benefits clearly.

To traditional software companies: No traditional software application is immune to web-based competition, so adopt web app practices now. It’s easy for traditional packaged software companies to convince themselves that web applications are not an immediate threat. In Rubicon’s work with them, we often hear software company executives say things like, “web applications will be a big challenge to us in three or four years.” Assuming that web app growth will be moderate and predictable is extremely dangerous. Since web app adoption has already moved fast in some software categories, it can move fast in any software category if the web app company gets its features right.

The time for traditional software companies to adopt web app technologies and business practices is now, before they’re in a crisis. If they wait for a crisis to develop, it will probably be too late to respond.

Everyone: Address security now. The security fears of many people who don’t use web applications should be taken very seriously. They show a latent undercurrent of fear that could grow rapidly in the future. A single well-publicized security disaster in a major web app could discredit the entire category and severely limit web app growth, just as safety problems in a few Chinese products have affected the image of the country’s entire manufacturing sector.

The IBM report on mashups acknowledged that there are several efforts underway to make web apps more secure. Web app companies should embrace solutions like these aggressively.

The future bodes well for Synthasite, methinks