Steve Jones attended JavaOne recently and hears arguments about Web 2.0, SaaS, cloud computing, and social networking that ring true to those made circa-2000 by long-cold .com corpses. He writes of the "buzz" at the conference:
"Now in 2008 I got exactly the same feeling I had back then "umm really?", what I saw then and now was some potentially useful technologies and a few great business ideas applying the technologies but lots of crap business ideas based purely on the technology. Web 2.0, SaaS and Cloud Computing are all things that could be useful and there will be some business models that come out of them but lots of the current ideas are just hype and nonsense."
A wise old sage from my past, an astute businessman as well as a technologist, advised me back then that business success largely stems from embracing markets, not products or technologies looking for a market. A market exists or appears, and firms develop and compete to meet those needs. Developing the product or the technology first, and then hoping that a market shows up on your doorstep begging to buy, is more than risky, it is often no more than dreaming. Too bad a lot of otherwise competent dreamers erroneously use that as a business model.
Steve goes on to say: "I'm not saying that Web 2.0, SaaS and cloud computing aren't decent changes in the way IT works, what I'm saying is that this isn't an over-throw of the old world order and it is hard to see the numbers living up to the hype."
Here's an interesting bit of data that reinforces his comment: craigslist.org, the classified ad/community website, is estimated to take in $150 Million USD per year with 24 (that's right, 24) employees. That's approximately $6.25 M USD per employee, per year from a website that has been described as "having the visual appeal of a pipe wrench."
Now, lets look at one of the poster children of Web 2.0, whiz-bang interface technology: Facebook. TechCrunch reported early in 2008 that Facebook's 2007 revenue is estimated at $150 M, but it has over 150 employees, and counting (the employees, that is).
Craigslist might have the "visual appeal of a pipewrench," but it is difficult to argue with the above math. What they did successfully at Craigslist was to offer a viable alternative to local newspaper classified advertising. Competing in, and in a way, redefining, an established market - that for short-term locally-based advertising by individuals or small businesses. Not only is that market established, but it is sustainable long-term. Technology by itself, focused on a narrow niche, is always replaced by something else, and nowadays, usually very quickly.
I agree that, as Steve relates, Web 2.0/SaaS/etc. are great technologies, but aren't sustainable markets in and of themselves. The real test of that statement aren't abused metrics such as "eyeballs" and click-thru rates on ads. Rather, as boring as it may appear, it's cash flow and profit based on servicing markets sustainable longer than a few years.
If you're going to be seduced, get seduced by markets, then apply the technology to serve those markets, not the other way around.