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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