This year has become the “show-me” year. Internet start-ups showing no traction are getting shut down, or trimmed — abandoned by once wide-eyed investors.
The Web 2.0 bubble is bursting, but VentureBeat agrees with others that this is more like an “oozing.” New, innovative companies will continue to get funding from VCs, but with more caution. Investments amounts in Web 2.0, while booming, are so far nowhere near the absurd levels seen during the 1999-2000 period (see the Hornik-Dagres debate about this here), so the wreckage won’t cause as much pain. Back in 2000, trillions of dollars of market value were lost, because the entire U.S. economy had gotten sucked up into it. This time, not so.
Still, some pain there is.
Peerflix, the DVD-swapping company, is the latest company to lay off employees, VentureBeat has learned. The Menlo Park, Calif. company has shut its Canadian office, cutting an undisclosed number of workers, founder Billy McNair confirmed. We heard the company may have cut a quarter of its workfroce, but McNair wouldn’t provide any details. These appear to be the first layoffs hitting the “swapping platform” sector. See our piece last year about Peerflix, where McNair’s optimism stands in stark contrast to today. This company’s business model has been controversial from the start, as you’ll see from the comments.
In other developments:
FilmLoop close to death — FilmLoop, of Palo Alto, Calif., has reportedly laid off most of its staff of 30 employees after failing to find a buyer. The company raised $7 million in venture capital just eight months ago, from ComVentures. Co-founder Prescott Lee and a few others remain. FilmLoop let users create photo slide shows on websites, something that several other players let you do — from Slide, to Rockyou and Photobucket. Note our skepticism back when it raised its cash. It was very late to the game.
Jobster confirms layoffs — Rumors began last year. Jobster confirms 60 people, or 41 percent of its worforce, have been cut (its entire sales and support staff).
…meanwhile, consolidation in social networking continues — The German Facebook clone, StudiVZ has been sold for a reported 85 million Euros (less than the earlier reports suggested), to Holtzbrick Verlag, a German publishing giant that had invested earlier in StudiVZ.
…and the new ideas don’t seem that compelling — Decentral.tv, the San Rafael, Calif. start-up raised $2.3 million several months ago to launch “interactive broadcast broadband communities,” which we called vague at the time, but said we’d wait to see. Now it is apparently launching Kyte.tv, which offers video channels you can watch online or on mobile phones. We could be wrong (we’re relying on other accounts), but it doesn’t seem to push things forward. This follows plans by Old Media folks to launch Next New Networks, the latest niche video company — having raised $8 million — with nothing yet to show. Are they getting religion too late, or can they leverage their network to launch something compelling anyway? Time will tell. But companies that raise cash first, before launching and getting users, are rarely successes — though there are exceptions.
Similar thoughts, too for Twistage, based in San Francisco and New York, yet another start-up offering companies a way to use video on their own sites. It has raised under $1 million in angel funding, and moved into the Looksmart building in SF, reports Liz Gannes. Backers are Computer Associates chairman Lewis Ranieri and Jerry Colonna, formerly of Flatiron Partners. Several other companies are doing this, including Brightcove, Reality Digital (see our post here), vSocial and GridNetworks. On the hopeful side, thousands of companies will want to incorporate video into their sites in sophisticated ways, but on the downside, the technology is quickly becoming a commodity.
Othes putting off VC plans — Some companies are giving up looking for cash, in part because many VCs are getting skeptical. One very well known Web 2.0 investor tells VentureBeat he’s made his last Web 2.0 investment, though he didn’t want his name disclosed. One valley-based company Mojeo, originally told VentureBeat it would look to raise VC money to bolster its service to let people find out more local information on their mobile phones — by sharing their location with companies Yahoo, Google and Upcoming. Co-founder Mike Prince told VentureBeat that he and co-founder Dave Sutter have instead returned their focus to their day jobs, and passing on getting cash for now — though will continue to push Mojeo forward.
21 Comments
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Simon said:
FilmLoop was first funded by GlobeSpan Ventures and Garage Ventures in January 2005, and hardly late to the game, just not reported in the blogosphere.
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Peter Rip said:
Well, yes and no, Matt.
Cream is rising and curds are falling. Before Xmas I heard of 4 “web 2.0″ deals that had B rounds of $375M in aggregate pre-money value. They have huge user traction (but little revenue, if any).
Consumer web is a lottery. More losers than winners. Nothing new, really. But there is drama at both ends. For every YouTube there are 1000 PeerFlix and Browsters.
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Charles Hudson said:
Because so few of the companies in the web 2.0 world are making any money, the only way to evaluate their prospects is on user growth or the perception that the company is a winner. In the case of FilmLoop, it appears that RockYou and Slide are doing much better. As is the case with video, I think we’ll see more markets where the #3 through #x players find a tough existence and the top 1 or 2 companies have options. Like Peter said, it’s really a lottery.
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Agoracom said:
I’ve been vocal about this very topic since the Mesh Conference in Toronto last spring. Specifically, it didn’t make sense that so much VC money was flowing into companies that were neither making money, nor had any monetization model.
I understand rolling the dice on a small group of gems but investing in 2 dozen online video companies looked more like throwing darts than smart investing.
Unfortunately, the direct result was to incentivize entrepreneurs to continue building “cool” companies with no revenue and, even worse, no chance of generating revenue.
We need to focus on companies that have achieved commercial acceptance FIRST and then provide them with capital to scale. Companies that have taken Web 2.0 and built applications for real paying customers.
This may not be “cool” but this isn’t high school either.
Let’s hope 2007 is the year of boring, money making companies that receive VC funding and grow even bigger. Quite the concept!
PS - We generated more than $1M in revenue this year + healthy profits from servicing the small-cap stock space. Real service, real customers, real money. Now looking for a real VC.
Regards,
George -
Ved said:
Hopefully, this will keep the bubble 2.0 to a size which would be healthy for the technology and for business.
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Matt said:
I agree. Of course the bubble will burst. The whole web 2.0 thing is just a term, it’s not real. Someone needs to start selling Web 3.0 conferences. Actual web businesses with revenues and expenses are continuing to thrive amidst the fall of the 200 random social video networking services…
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SearcH EngineS WeB said:
Many of the services of these web 2.0 StartUps are good and useful and their technologies are innovative.
It is unfortunate that those with similar technologies are not able to combine and synergize to form something more potent and impactul.
There is no good reason why a good product or service can not be combined with something that already exists - as opposed to just being abandonned - perhaps it is just ego or narrow-minded competition.
When one thinks of all the brilliance and hard work and labor and investments that has gone into creating, that ultimately is wasted when the creation dies.
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Pramit said:
MediaVidea a detailed analysis of the current Web 2.0 situation, vis a vis the bubble:
http://mediavidea.blogspot.com/2007/01/web-20-gets-pied-piper-in-cheerleaders.html
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Peter Rip said:
It seems to me that it is no coincidence that these notices come at the start of a new year. I think company closings / failures tend to be seasonal, relating to funding and fiscal operating plans. Don’t expect to see the rate of Web 2.0 carnage to accelerate over the next few months. Don’t get me wrong… there too much of the same stuff everywhere, but the breakage rate is more chronic than a bubble bursting.
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AkiraKaneda said:
McNair is saying that this piece isn’t actually true in the way they make it sound. You can check out his comments over at thebacklot.peerflix.com under “Critics Corner” in the topic “Peerflix Canadian Office Closed.” Go have a read and see who you believe.
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Matt Marshall said:
Good grief, McNair can say what he wants, but he told me they closed the office there, and everyone in Canada is going. Some might be transferred back to the US, but McNair wouldn’t commit to any details on that, and definitely said there were layoffs.
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Tom Ruthford said:
Too bad about Mojeo. However, one company that seems to be thriving in this field is Earthcomber–which has a patent on LBS technology identifying a person favorite person place via GPS.
Earthcomber seems to be the application that has survived and thrived. I have it on my phone. Pretty cool.
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PDX Guy said:
The bubble has blown up already. Yet still some many 2.0 sites hit the market every month.
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chronicpain_hero said:
As author of chronic pain tolerations sites Im a bit disappointed to see that Web 2.0 tech is having the problems that it is. I share anything I find out about tolerating chronic pain with anybody who wants to stop by and read it and I use a lot of the Web 2.0 tech sites to reach my audience. Wonder what impact that will have on SEO and other marketing ideas.
