Which Web 2.0 Companies Are in Trouble?

I came across this interesting article from Rafe Needleman about web 2.0 startups which will not make it through the economic downturn. Here are my thoughts on some of the companies on his list:

Twitter: I agree the company needs to generate revenue and showing some ads wouldn’t hurt the business model that much. As I mentioned recently — I have started to use this service regularly — but I am not promising I will have time to continue.

Zillow: This site seems to be used by virtually everyone who owns a house — is shopping for one or is curious to see how much their friends and coworkers are worth. You enter an address and get a home price. Cool stuff — but at some point it does need to generate revenue. I did see an ad for State Farm Insurance on Zillow today so I am not sure this site is doomed. Then again, I don’t know what the site’s expenses are.

Pandora: I would be devastated if this one was to die off. The ability to play customized music based on a single song or artist is amazing. I do know the company has agreements with AT&T and Sprint to stream music for a small fee. Hopefully this along with the in-home consumer-electronics agreements it has will keep it going.

Second Life: This one could die off. I could see it happening due to the massive infrastructure costs. Rumor has it the platform will spin off an enterprise offering soon. If so, this will potentially bring in revenue as I believe virtual worlds will play a larger part in future communications.

Skype: Why would Skype go away? I don’t get the thinking here. The company is growing revenue and one imagines in a slowing economy, more people will Skype than ever.

Ask: This search site keeps getting better and I try it monthly in the hopes I will like it. I never seem to like it enough to try it twice in a month though. I am unclear about how this site will do but I think it makes a nice acquisition target for Microsoft and even Oracle.

Perhaps the most important thing to take away from this article is that companies need revenue models or investors with the deepest of pockets to make it through any slowdown. Remember though that one of the reason’s Google has done so well these past years is that they were busy building a search engine and investing heavily while others lost funding and abandoned the market.

In other words, when we come out of this housing/financial storm, there will be a string of new winners in a number of markets that will be really tough to compete with. It happens every time. The question is, will investors have the patience and funds to ensure these companies cross the chasm to profitability?

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