Updated
New Internet technologies, defined vaguely as “Web 2.0,” have gone mainstream, but the cycle of innovation may be slowing, suggests a venture capitalist.
Separately, data shows that venture investments in Web 2.0 companies last year increased strongly, but that valuations actually dropped.
Peter Rip, of Crosslink Capital, who has invested in several Internet companies considered Web 2.0-focused, including Riya, Vast and Teqlo, posits that one way to check the “energy dissipation” around Web 2.0 is to look at Web 2.0-centric media, including Techcrunch, Gigaom, and Technorati.
All three of these properties show a similar falloff in reach from their Q4 peaks, all notably right around the Web 2.0 Conference, he notes, pointing to graphs from traffic-measuring service Alexa.
Peter’s post is here. He suggests the early easy wins by new companies targeting Web 2.0 have been had. Now that Web 2.0 has gone mainstream, the hard work begins.
The real debate takes place in comments on Peter post, which he has already shut down.
Of course, Alexa data is notoriously unreliable.
Update: Another controversy is how Web 2.0 is defined. One good definition has been produced by VentureOne and Ernst & Young (we wrote about their definition here).
Today, the two released their latest report, which shows venture capitalists more than doubled their investments in this area last year (see table below), but that the valuation they placed on these companies actually dropped. On its face, this suggests a cooling in the hype around the sector. However, the value drop may stem from other factors. For example, investors may be having to find and invest in Web 2.0 companies earlier in their cycle, because the companies need fewer overall dollars to grow– and so bypass taking capital later on. That means the value of the companies is lower at the time of the investment, but doesn’t necessarily mean a cooling off of interest. Indeed, many investors we’ve talked with say valuations are higher than ever, once you factor in how early these companies are in their traction.
Update II:
VentureOne and Ernst & Young have released a very useful table of Web 2.0 investments and their details here (download Excel file)
And here is a ranking of the most active venture capital investors in this latest cycle (more detailed info here; downloads Excel file)
9 Comments
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Michael Lacy said:
I’ve been working on a site that addresses some of Peter’s concern about interoperability and normalizing data across sites. Presently, i am aggregating all of my social network activity in one place and re-mixing all of the content, tags, etc. for re-distribution.
Check it out if you’re curious.
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Lynne Jolitz said:
If Alexa data is “notoriously unreliable”, why are you using it at all, Matt?
This would be like announcing that Google is leaving search to go into the free range chicken biz with a big headline “Is Search Over and Out?”, while admitting that the source, Chicken Investment Tracking, is “notoriously unreliable”.
Of course, you *have* heard organic is big with investors, haven’t you? :-)
Lynne Jolitz
CTO
CoolClip Networks -
Matt Marshall said:
It’s unfortunate that Peter used the Alexa stats. Perhaps he didn’t realize the extent to which this would stir debate. Since I’m trying to cover thoughts about this space, particularly among investors, I felt I should at least point to Peter’s post and the discussion it generated. But its also necessary to point out that Alexa is unreliable, which Peter didn’t do clearly.
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Peter Rip said:
Well the Alexa controversy really is a bit of distraction. Perhaps it was a fallacious indicator. There is a difference between “reliability” and “bias” in measurement theory. I figured it was unreliable, but not biased, especially not to the negative. What I did not do was corroborate this with other free sources like Quantcast and Compete. My mistake. These services do not show the same drop off in traffic.
I really was making a larger point about the lack of differentiation in Web 2.0 startups and the ‘next major wave.’ I certainly did not expect I was throwing a hand grenade into the room. My apologies for the distraction, but I stand behind my thematic observation (as do most of the comments on the original post, BTW).
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Dave Evans said:
Agree with Lynne, stop with the useless Alexa data. Lots of other places to get data like Compete or Quantcast.
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Sramana Mitra said:
Here’s my 2c: http://sramanamitra.com/blog/728
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Phil Butler said:
Hi Matt,
There is some evidence that startups are being channeled toward “suites” rather than single entities. I have been a big proponent of collaboration between some of these Web 2.0 entities.There is some resistance to these ideas, particularly with those that might be angel supported in their investor profiles.
Other entities like Wikia-Search and hakia have expressed a desire to collaborate and are intending open sourcing their wares at some point.I agree with your excellent evaluation of the current situation, and have some of the same issues.
I hope I helped in some small way in the discussion!
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Santhros said:
What seems to be happening is that traditional corporations are turning their sight to the new media market generated by Web 2.0.
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jc said:
If you don’t have a business plan that can be monetized into actual revenue, you are just developing a feature for google,yahoo,ms. I don’t see many web 2.0 companies that have a plan to monetize what they are doing. Even this pie in the sky data aggregation and integration issue: Yeah I see the point, but you can’t boil the ocean mate. Fact, divergence in information is going to happen at a rate faster than any convergence efforts by any startup, and you can’t monetize the effort of making this grand data integration. What you need to do is build a product that is worth paying for. A product good enough for users to reach in their wallet and pay for.
