My take on web 2.0: user 2.0

I have been more and more disturbed in the past few months about all this jazz around web 2.0.  Our panel at Les Blogs (online shortly) pointed to some trends in investing 2.0 showing that the venture capital cycle is getting shorter and that somehow entrepreneurs sell out directly to the GYM without going through the VC stages anymore.

I’d like to open up the discussion to what I call USER 2.0, as I see many good and bad trends coming up.

The Good:

• Internet users around the world are far more numerous today than 5 years ago (anyone has the right number ? I guess somewhere 1 billion people connected to the Internet ?). Hence the market for any kind of online service (including Internet retailing) has expanded dramatically
• Internet users with a broadband connection has increased a LOT. Many new services can be imagined (did I say video? ), including online collaboration tools, multimedia, training, etc. You can track the broadband penetration of the world on this wiki. The permanent connection nature of a broadband connection also extends Internet usage considerably.
• Internet users using a mobile connection has exploded. in Q3 of 2005 alone, about 230m phones were sold, an all-time high record. Most of these phones (is it >80%? someone has figures?) are now sold with a data connection (GPRS, EDGE, UMTS, 3G, CDMA, etc.) and a camphone (picture & video). A gazillion new services ranging from mobile IM to mobile email to mobile blogging are emerging. I’ve talked a lot about these in my mobility posts since 2004. More again tomorrow at the Mobile Monday event in Paris, at the Fanny’s Party on tuesday, etc.
• Internet usage has gone up: not only are Internet users feeling more comfortable with the basics of the Internet (email, web surfing, even blogging), but they are also feeling more confident about trusting sites for online payments (anyone has recent studies?), for day-to-day shopping, for booking holidays and trips, etc. The Internet has become almost as natural as former distribution channels. And it has expanded its target audience from universities and geeks to the mainstream people of all ages.
• Technologies have evolved, and are allowing many more things that were difficult to master earlier: this includes the HTML formats (with expansions such as RSS and OPML) to programming languages (from PHP to Ruby on Rails), to online codecs (better quality, better interactivity), etc.

Business models have matured, programmers are more skilled, there’s more documentation online, and many clowns have quit the scence: somehow I feel that the Internet is such as better place today than yersteryear to launch a viable business.

The Bad:

• I have the impression that Internet users are getting very blasé, or is it just my bias for hanging out too much on the blogosphere. Everyone craves to test the latest service to come out, and post a review of their tests, what they think, what the service should have done better, etc. The phenomenal rise of sites such as engadget (testing all things electronic), the download squad (all funky software), techcrunch (web 2.0 sites) are just examples of this.
• The bad part is that this excitment lasts just about a while until the next thing comes out. Test, test, test and then move on. Well… corporations exist for many reasons, and one of them is that they solve a great market pain, provide an innovative way of doing the same, etc. They generate stickiness. Great corporations make that very clearly in their value proposition, and users can explain it immediately. I pay for an anti-spam (well used to since mailblocks.com stopped their service), for 3D views of the earth (well used to, until Google acquired Keyhole), for a blogging platform (because I feel safe that my data is safe : yes, Typepad), for my broadband connection (because I know I’ll always get the best speed available), for my VoIP service (yes Skype! I love the SkypeIn numbers, the portable voicemail…). Unclear services, or just nice-to-have services produce immediate churn, so users 2.0 are not the only ones to blame.
• I find users more volatile today than yesteryear, or should I say more demanding. A service can’t be good, it must ve very good. Typepad was down for a day? that’s it, say users, I’m moving elsewhere. Even I have trouble staying with Skype when their service degrades. Well that’s true of any mature business isn’t it? If your neighborhood restaurant starts serving crap, you’ll stop going. And the problem with the Internet is that the next restaurant is just one click away. But forgiveness is something that has disappeared.
• Finally, I’m finding users being more easily bored. I saw a post the other day saying that Bloglines hasn’t introduced any new service or feature lately, so users should move to the next thing. Well it does what it does well, doesn’t it ? Of course Bloglines, such as Typepad, such as Technorati lately, had reliability and scalability issues. Management teams were focusing on growing the robustness of their core service instead of adding more makeup to the lady. Somehow users do not understand that and complain more than applaud. A new AJAX interface gets more reviews than the fact that a search query consistently serves an answer in less than a second (and I don’t even know how many new hits Google gets every day).

The Ugly:

• I still don’t get why Internet users are still fascinated with *free* services. Yes, there a number of free services out there, but there are all based (I hope) on a sound business model.

1) The most natural one is advertising. Businesses get advertising dollars for your eyeballs. If they get more money from ads, than what it costs them to serve you, then they have a business model.

2) the second one is called customer acquisition: you get a service for a while or for ever, provided that a % of the population recruited will move to a paying service. If the revenue of teh overall paying population exceeds the cost of serving all the free customers, then there’s a business. A number of folks work this way, and it’s a matter of maths to figure out how much service to give the user, or for how long. There are of course variants: for instance dating-service Meetic forced all boys to pay in order to register, whereas it was free for girls. Bars and night-clubs do the same: it’s just a variant of 2).

3) another B-model to which I don’t subcribe is called marketshare gain. You try to get as many users as you can, as fast as you can, in order to our-maneouver the competition. The player with the more cash in the bank lasts the longest and can start using B-model 1) or 2) when competition dies and when it holds an incredible market-share lead.

4) another final B-model is to ask for donations, and hope not to spend more than income. Foudations have worked like this for a long time. But that means that there must a constant fund-raising campaign to generate steady income. You can for example help wikipedia.org stay alive by donating here. To some extent, asking VCs to give you money all the time is a variant of this .

• The phenomenon has expanded now to hardware as well. We are all aware that Nokia is providing a few select people around the world (disclaimer: I’m one of those lucky guys) with their latest phones. Clearly their aim is to have us talk about them. The catch is that we are NOT under any obligation to do so, NOR to say anything nice about them. This relationship between “influencers” and brands has existed almost forever, except that it used to be the journalists who got everything before. Now the ugly part is that everyone is asking Nokia for a *free* phone (I can’t tell you how many poeple I have on tape asking for one). Somehow people forget that Nokia’s business model is to SELL phones, not to give them way, until of course they change business models to services for instance.

Buy! people, pay! for services somehow (cash or eyeballs). As I wrote earlier today, there’s no free lunch. If you want corporations to keep delivering services to you next year, and the year after next year, they need to earn money, so that they can invest in equipment, infrastructure, people, marketing, growth, and still make a profit to motivate the management team and their investors (who provided the first funds to launch the service).

The rule of the game (in my view) for Web 2.0 companies is still free cash flow, ie. whatever is left in each period (month, year) when all costs are substracted from revenues, including investments, to which you add a bit of cash management techniques.

Let me know what you think.