Mark Evans

Does the [Web 2.0] Emperor Have No Clothes?

You’ve heard the Hans Christian Andersonn story about the emperor’s clothes - or lack thereof until a young child declares “but he has nothing on”?

Well, a venture capitalist in the heart of Web 2.0 central (aka Silicon Valley) has suddenly decided the whole Web 2.0 eco-system isn’t worth of investment. Tom Foremski has a post that Kleiner Perkins partner Randy Komisar has declared his firm has “absolutely no interest in funding Web 2.0 companies”. That’s pretty radical thinking at a time when Facebook is worth $15-billion, and many startups are getting financed with no business plans (e.g. Twitter).

Is the venture capital community finally realizing it’s time to get pragmatic about their investment decisions? When a heavy-hitter like Kleiner Perkins determines it’s shying away from Web 2.0 companies, perhaps it’s a sign of a philosophical shift that’s emerging after four very bullish years.

Truth be told, it’s a long time coming but no one really wanted to admit. After all, these are good times within the Web community. There’s lot of startup activity, plenty of money to finance things, and no lack of opportunity to get together to talk about how wonderful things are (sold-out conferences, Demo-this and Demo-that, etc.) Why would anyone want this party to end?

Eventually, however, all good things need to come to an end or, at least, change.

The flurry of startups offering cool, interesting and, sometimes, useful services is wonderful. It’s like eating at a sumptuous buffet where the food is continually being restocked with something new and delicious. But many of these startups are services rather than businesses. When these companies start to be financed based on the formula that more eyeballs equal more advertising, that’s a wake-up call - especially when you’ve got dozens of startups in the same market embracing the same business model.

So perhaps we should thank Komisar for being bluntly honest. Maybe we’re not headed for a major crash but it could be a sign that times are a changing.

Links:

- Mashable has a long post that suggests some VCs are simply reacting to the some of the noise they’ve been hearing about the bubble bursting. “So when you have the entire blogosphere spending the better part of a week talking about how Web 2.0 is a bunch of tripe, and is really overpriced snake-oil, are you going to be surprised when a bunch of detached rich guys stop funding the party?”.

- The always-pragmatic Rob Hyndman weighs in that “it’s beginning to feel right for a bit of a shakeout. What happens next, I have no idea, except that many who depend on Web 2.0 for their livelihood will call Kleiner and its ilk bad names. And so it goes.”

Technorati Tags: Venture Capital, Web 2.0