Thursday, January 29th, 2009

The future of the web is small

The future of the web is small
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I have a theory. It could prove incorrect or even shortsighted, nevertheless, it’s a bet I’m willing to make. I think businesses on the web are going to get a lot smaller. In the web world, we’re currently experiencing the fallout of the second of two tidal waves. The next one, however, will be slower, more distributed, and come with far less of a shock.

Panning for gold

The last two surges have been exciting at times and harrowing at others. I’d characterize it as largely bulimic, contrasting ridiculous excesses against severe slashing. The most recent web gold-rush perhaps didn’t seem as profoundly exaggerated as the first, but it was still founded on the notion of endless wealth and massive payouts. Hence, many people started small companies in their garages with hopes that their operations would gain traction and ultimately be purchased by the one of the big guys.

Now, all of this is fine, as long as you have big companies who want to buy startups; however, there are a couple of significant problems associated. First of all, in today’s economic climate, all of those groups are tightening up, and as such, have little interest in speculative investments for the foreseeable future. More than that, however, is that this model comes with really poor odds. Yes, there are success stories like Hotmail and YouTube, and there will continue to be. That being said, there are a disproportionate number of “start-up corpses” strewn along the path to those riches. In fact, it’s an unacceptable number if you really think about it.

Venture capital isn’t for most of us

The problem with shooting for the stars is that, as a result, you tend to miss all of the possibilities right down here on Earth. One thing that continues to baffle me from our experience in creating pitches for funding, is just what a narrow set of companies are truly eligible for such programs. One major part of a VC’s criteria comes down to the size of the opportunity, and unless there’s the potential of an exit in the “hundreds of millions”, it seems highly unlikely you’ll have any luck raising venture capital. (Should any VCs see flaws in the preceding statement I invite them to correct any erroneous assumptions.)

The point I’m trying to make; however, is that there are a lot of opportunities between zero and “hundreds of millions”. So while many are chasing VCs who will insist on boards, management teams, and massive exits, a lot of good companies aren’t starting… but that’s going to change.

The emergence of digital “mom & pops”

Venture capital may be necessary for some, but most of us don’t need that kind of money to launch an online startup. Our tools (hardware and software) are becoming less costly, we have VOIP, virtual services, and programming frameworks that cut our costs and/or speed us up. There are things that are hard to get around (i.e. marketing costs, which can be necessary if you have a product aimed at a broad market); nevertheless, for the most part, we now have the ability to get the word out more easily than ever.

When TechCrunch featured our Elevator Pitch in December, a number of people told us that there was no possibility of MakeFive working. They may be right, but I think they just have different ideas of success than we do. We aren’t envisioning a massive “exit” for MakeFive.

We simply want to make enough money from our projects to cover our operating costs and take some time off. With each one, we generate a little extra passive revenue, and with time we won’t have to work as hard as we do now. Again, it’s not unimaginable wealth we desire, but the freedom to do as we wish. So we don’t need a VC, or funding, or an exit to be successful. We just have to build neat stuff that a few people use–so that we can continue to build things we like.

My suggestion is that this is a much healthier way to look at a startup than the “I hope Google buys us” approach. Additionally, it’s well within the grasp of most anyone who chooses to take on the challenge. I predict many thousands of tiny groups from all around are going to start building great little services. Most won’t make millions, but some will. The rest of us will eek out a reasonable living while sidestepping a soul-sucking 9 to 5 job.

I like to thing of us as “micropreneurs”. We’re not about getting rich, we just want to build out small revenue generators.

Small purchases can prove substantial

The “wow” of the iPhone for me is not about its design, functionality, or user interface (even though those are all lovely); rather, it’s found in the App Store. This brilliant paradigm is like the candy stand at the checkout. It brings the cost of purchase down to a level at which buyers can be directed by impulse. I’ve bought apps for a few dollars that I hardly even use, but I don’t have any hard feelings over these purchases. They were cheap, so no biggie.

And this is the way that all of us entrepreneurs have to start thinking. Instead of giving everything away and trying to make it back on AdSense, we have to build neat stuff that people are willing to pay a dollar (or ten) for. I could be wrong, but I think the App Store proves that there’s an enormous appetite for applications and services that are reasonably priced.

So what are the Mom & Pops going to be doing?

Let me suggest one possibility to start the conversation.

All over the world are community newspapers. The coverage of their impending doom has been rampant over the past months, and I think we’re really seeing these groups near their collective death rattle. Just consider: there are better ways to get the news than on a dead tree; sites like Craigslist are decimating newspaper revenues; the costs of producing a traditional newspaper are very high.

And here we find enormous opportunity. Even if printed newspapers become outmoded, does local news lose its audience? Hardly! Will local businesses no longer advertise? Uh-uh! Is there still a need for a space in which locals can share their opinions? Most definitely!

Although small local papers may not be able to survive with the overhead, staff, and costs that they currently do, there’s a lot of room for “Mom and Pops” to start up and service this need at a much lower cost. No pressmen, no ad sales teams, no warehouses, no delivery drivers. Instead, bring together an editor, developer, and sales person; crowd source the stories, have the editor review and moderate them, and have the sales person sell ads targeted to a local marketplace. (Needless to say, these ads would command substantially higher revenues than AdSense could offer).

Would these three get rich? Doubt it. I bet they would make a reasonable living from it though. This is but one example of how small niche industries are going to emerge as a result of technologies that skirt around the costs of old materials. (There are thousands of others.) The trick for many may be to focus on defined markets, keep operating costs low and offer worthwhile services.

Parting notes

My big plea here is that we all “get real” about what content and applications are worth on both sides of the equation. I refuse to pay $1/track for music from iTunes. The distribution costs are no longer what they once were, and asking those prices is simply unnecessary. At the same time, there are many gifted artists who hardly manage to make a living given how the current system is structured. It’s built for superstars and the generation of massive wealth, but it really doesn’t have to be.

We need to start paying for what we consume, but at reasonable prices. A lot of musicians would do fine by selling directly from their websites for let’s say $5 an album. Many blogs would deliver better offerings than traditional media, and they’d be able to even survive if readers paid even a couple of dollars a month to support them.

To build this nice fabric of microprenuers, we need an era of micro-benefactors: those who pay a small sum to support the people who make the stuff we love.

And don’t even ask me about Zenbou… I’m not telling.

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Comments & Trackbacks

  1. Michael says:

    totally agree. In fact, I expect this development offline as well.

  2. This reminds me of an article I read a couple weeks ago about this guy who made almost 100K during the holidays selling his ifart app on itunes. Not that it is a revolutionary, or interesting product, but it definitely is a good example of how people are willing to pay a buck or two for just a few laughs.

    great post again eric.

    ouuu zenbou! I'm intrigued!

  3. DoreenatDMS says:

    Great post, Eric... There has been a lot of conversations of late regarding the big publishers employing some kind of hybrid for-profit/benefactor-foundation type model. For the last few years, eyes have been way bigger than stomachs ... building something just to try and "sell big".

    I suspect you may be right in that things may start to settle .. but either way, the independents (mom & pops) and the "big boys" will always face the ever-increasing imperative: focus on quality, always deliver it to your audience, and figure out a way to charge for it that is founded on and aligned with reasonable expectations.

  4. Josh says:

    Eric,

    This is exactly the way I think. Though I haven't got a startup under my belt, my sketchbook and mind are full of ideas that aren't looking to be my ticket to a yacht or exclusive country club membership, but rather to be helpful to anyone that would utilize my dream project.

    Though unlike many of the strewn about, I have been thinking about revenue models from the ground up and how that will affect the want to use a service if built.

    Maybe its our bald heads, but we're so on the same level its scary. Everyday I preach the gospel of why sell your software for 1ooK, when you can sell it for $10 a month or just $10 (with limited use of course). Going small is the new way to get big.

    Believe it people.

  5. Raymond says:

    Great post Eric, as usual.

    i totally agree with the concept of targeting for a realistic level of success. There are many rewards in life that don't come with 6 or more zeroes behind it.

    Often times we need to adjust our perspective and focus on more modest, yet as deeply rewarding goals, that are far closer to us than the proverbial golden ticket.

  6. Josh.

    It's all the "bald" thing. Really. It's simply a higher state of being. (Or shorter state of being... one or the other.)

  7. Detrus says:

    What you're describing sounds like the Long Tail idea of economics. If the popularity of small projects increases as you predict, it won't be the first time. There were quite a few popular movements where many small developers made money. I can remember the Mac shareware movement, Windows probably had one too, only overloaded with crap.

    There are some problems with this approach. For the end users it becomes an information overload. Most people don't know or care if there are ten different applications that do the same thing, or do some tiny thing well. Most likely people won't think anyone bothered making them, so they won't bother looking for them.

    Apple is trying to solve this problem by having a filtered central distribution, just as years ago shareware was distributed through trusted sources.

    Ultimately functional applications compete against each other and only major winners remain. This is because it is simpler for the end user who can't remember ten different search engines or word processors.

    For applications with limited utility the chances of major success were always slim and will remain so. People who make such applications have strange motives. Do they want to make a little money instead of working 9-5, but they don't want to bother making something serious because it takes too much work? Who knows, farts are funny though. Such efforts seem to be rewarded appropriately; if you can't think big about our world's shortcomings, you won't have the responsibility to fix them.

  8. James McLaughin says:

    Nailed it! Great read. I've been feeling this way for awhile. I am trying to start my own thing but I'm planning on growing it slow.

    My wife supports us and with what I saved over the years we will be able to make it for 2-3 years without any major hassles. Gives me room to hit the right idea.

    James

  9. Oggy Popov says:

    Deat sir,

    It was most interesting to read your opinion.

    As a full time employee at the largest internet marketing companyin Belgium, I really hope, obviously, that you are wrong.

    We should not leave ecommerce and other affiliate related businesses out of the picture which are really developing and gaining a lot from the posibilities the web has to offer. I still believe there are many things to be achieved and many of them will be achieved by youngsters who still believe there is a good chance that they can make it happen. Of course there wouldnt be no second Youtube success, no 2nd Facebook success or many others, bought by them big guys. Still, I encounter everyday in my practice many great ideas, worth paying attention to. I do believe and hope that there is a place under the sun for everyone, willing to invest his time in something he believes in. And even if they do not become huge multimillion dollar projects, then so be it. At least we have tried, failed or won, but never back down. In the end of the day, if you dont build it, they wont see it :).

    Kind regards,

    Oggy Popov

  10. Grant says:

    Great post. I agree and find hope in what you said about local audiences. I also think the artists selling on their own sites is a great idea. I supported NIN and radiohead when they did that.

  11. David O. says:

    I agree with many of your assessments, except I'm thinking they are plenty of successful small businesses on the internet now and many of them have the potential to increase in size. In the physical world small mom&pops shops are restricted by location and the high cost of expanding.

    However it's not uncommon for a small internet company, that has an in demand product, blog or service to reach thousands or millions of people. It is more affordable to sell to thousands of customers on the net. Especially if you're selling, software, music or any other forms of intellectually properity that can be transfered over the internet. Buying more bandwidth is very cheap compared to leasing or purchasing physically space, equipment and furnishing.

    In conclusion the ability for a successful/popular
    small company on the internet to go big is ever present, if they choose to, of course.

  12. Beautiful post, and pulls together a lot of the thoughts I've had over the last year or so working with one of those startups that desperately wants to be the next big thing. I've since moved on, and have been focusing on exactly the types of applications you are discussing.

    I even came up with my own word for people like us, though I think I like yours much better. Being a developer, used that instead of 'micro' to get 'developrenuer.' That's rather isolating though, your term can easily encompass a small team as well.

    Finally, your post prompted me to head over to TechCrunch and read some of the comments there, and I gotta say I'm glad I've avoided that place up until now. I would seriously question how many of those commenters are actually running successful businesses backed by VC money. To me, that sounded like a group of people desperately trying to justify their own life choices by talking down on those who have a different approach. Life is full of these people, and they aren't worth the time.

  13. Kevin Burr says:

    This was a swift kick in the right direction for me. Really makes you think. And I love the term microprenuers. I can see that being used far more in the future. Anyways, thanks for sharing.

  14. Tom says:

    Hi Eric,

    I read your your post just after reading this article (http://tinyurl.com/aepn4o) in today's Irish Times.

    With real products generating real revenues through mechanisms that facilitate competitive pricing, its all possible.

  15. Nice article Eric!

    People are misled by the rare "sell your big idea and cash out" scenario. I love the idea of "micropreneurs". People who do it for the love and to make a decent living. I see more and more "mom & pop" design + programming operations these days too.

    This period of time feels revolutionary for those who keep small, nimble and motivated.

    Thanks for the great read!

  16. logo designs says:

    I don't think i agree with you on this. Web based business has come too far to fade out and I think it is well involved in our future. Great post though, really gets you thinking.

  17. Bob Barker says:

    Small comment: 99 cents per track is completely reasonable, that is a silly statement. Sure, you have every right to not pay it, but 99 cents a song is completely reasonable.

    How about your services get reduced to $50 per "page"?

    Why would a song not be worth that, now that we've had the choice (thanks to Mr. Jobs), to purchase individual tracks? Ridiculous comment (and position).

    Is that worth it? Really?

  18. Evan Meagher says:

    $5/album is the rate I always fall back on too when the topic of modernizing media distribution comes up. I'd totally pay that, provided the opportunity is available to hear the album before purchasing.

    Good article. Exponential startup growth is increasingly becoming something you shouldn't rely on. Slow and steady wins the race.

  19. Steven Clark says:

    Of course it's all true but one concern about mom and pop local newspapers is the validity of their coverage. Blogs have opinions, newspapers have journalists and editorial process. We'll get the news we're willing to pay for, so to speak.

    But there's always been a lot of middle ground opportunity from going after micro-payments and not being greedy. It's a shame more people don't get that paradigm. What's that saying - I'd like a dollar from everyone in China...

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  22. tmac says:

    Traditional newspapers and domestic auto companies share many of the same qualities (which are both topics you have posted on). They both create poor quality products that no one wants to pay for. They both have outmoded, unsustainable cost structures. They both evolve at the pace of a jellyfish.

    If you want a good example of your 'mom & pop startup' in action, look no further than the thetyee.ca and 2enncars.com, both Canadian companies that started out small, have remained small, yet continue to grow in baby steps, keeping costs low. Great post.

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  25. Totally! I have thought and talked about the idea of staying small for a while now. Apparently and in general, people just think in terms of getting rich or being totally poor (as you mentioned, Eric) and don't see anything in between. I never understood the statement made by business consultants that if a company doesn't grow, it'll die. That's not true at all! I can say from my own experience as I finally got tired of these narrow statements and decided to do things my way, with success (in my view, which is the point here). Besides, being from Brasil, I can't tell you how many families I know that were well sustained by very small mom and pops businesses, as sewing, cooking, etc. They stayed simple, accessible, and community-oriented. Can you say they were not successful? When we start measuring success differently -- based on what's important in our lives -- and not only solely on financial reward (which it should only be a part of it) we will break free from useless ideas that, in most cases, don't fit our realities. Could success be: have a day populated with other things than only work (i.e.: work=25%) as taking care of family affairs, enjoy being at home, be quiet doing nothing, reading, go for a walk, not work some days, go home for lunch and dinner (instead of frozen food), more sleep, make art, cook lunch, cook dinner, cook breakfast, spend a day with a friend, sleep in the morning, take a road trip in the middle of the week, work with a sense of service (according to people's needs) on things that are meaningful and pleasant to you. AND, be free to choose when to do any of these things. To me, the above cited things are luxurious rewards and I will exchange money for any of them almost always.

    Career is a concept of the 20th Century. Working all the time is neither natural nor desirable. Obviously there are other always of doing things, but after decades of capitalism we can't seem to establish any connection without adding money to the glue that hold these connections. With risking sounding corny, I will add that while we remain completely absorbed in only capitalistic ideas, we won't be able to be creative in other ways that could possibly make our lives look more the way we keep dreaming they would.

    If you're able to find, read Domenico Di Masi's (an Italian Sociologist) "Creative Idleness". Not sure it has been published in English, which is no surprise given the types of ideas he presents (i.e.: part-time jobs for everybody + rest of the day engage in creative idleness).

    Cheers!

    "Only immature people need a lot of money to make good use of their time." -Domenico Di Masi

  26. Nice suggestion--I'll keep an eye out for that book. :-)

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  31. Eric, I am planning to blog and the posts here have been a stimulator. I think it is possible to offer readers a blog at INR 500 per year or $10.
    Yes, I would have to cater to a small audience and wouldn't become like Rupert Murdoch.

  32. Rob says:

    Great post. I've been following this path for about 18 months and I call it "Micropreneurship" (and "Serial Micropreneurship" once I started running multiple websites/apps).

    This work/lifestyle choice lends itself to a super flexible schedule, location independence, and constant learning. It's not for everyone, but I am totally unemployable now - I could never go back to a salaried gig.

    Thanks for the post.

  33. Great article, definitely in support of artist selling from their own sites, seemed to work fairly well for Radiohead.

  34. Nice post Eric … some interesting thoughts there. However, micro- entrepreneurship is hardly a new idea. Most successful businesses probably started out the same way. I’m not sure how successful Yahoo thought it would be when it first started out way back in the early 90s.
    We can’t just stop dreaming BIG because at the end of the day that’s what dreams are supposed to be … larger than life … more than you expect to achieve ordinarily.
    Being a micro-entrepreneur and wanting to stay that way is a crime in my book. Yes, one can start out that way and if one does not meet with grand success so be it … but being satisfied with ones lot stalls progress. We probably wouldn’t be able to comment on this blog or you wouldn’t be able to write one for that matter if it wasn’t for someone’s small idea making it big. The web is only as small as our collective imaginations … so let your imagination run wild.

  35. jogo sueca says:

    Good article. Exponential startup growth is increasingly becoming something you shouldn't rely on.

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