Web Researcher Offers Close Look into Web Success, Failure

By Chris Preimesberger  |  Posted 2006-09-19

Web Researcher Offers Close Look into Web Success, Failure

SAN FRANCISCO—Which so-called Web 2.0 site will become the next MySpace.com, Facebook or Flickr? Wouldnt you—along with all those savvy IT venture capitalists in those fancy BMWs—like to know?

Well, TechCrunch.com founder and attorney Michael Arrington seems to know, and he was willing to share this valuable information at the first Future of Web Apps Summit at the Palace of Fine Arts Theatre here Sept. 13-14 in the Marina District shadow of the Golden Gate Bridge.

TechCrunch, founded in June 2005, is a Weblog dedicated to "obsessively profiling and reviewing new Internet products and companies," according to the description on the site. In addition to new companies, TechCrunch profiles existing companies that are making an impact (commercial and/or cultural) on the new Web space.

Arrington edits TechCrunch and also writes a companion blog, CrunchNotes.

Arrington spoke to about 350 participants in a 60-minute morning session.

"So you want to start you own Web site business. The good news is, yes, you can do it; the bad news is: Its not easy," Arrington said.

What Constitutes a Winner

Arringtons first example of a Web site success was MySpace.com, the social networking phenomenon.

"MySpace has grown four to five times what it was a year ago," since being bought by News Corp. in July 2005 for $580 million, he said.

Santa Monica, Calif.-based MySpace, founded in July 2003 by Tom Anderson and Chris DeWolfe, offers an interactive, user-submitted network of friends, personal profiles, blogs, groups, photos, music and videos. MySpace also features an internal search engine and an internal e-mail system.

"There is an example of a winner, right there," Arrington said. "MySpace did everything right, from the beginning. The owners were single-visioned; they worked hard, focused on what they did best, got just enough VC money to make it work, provided an excellent service and Web experience; and now theyre rich."

And still working, it might be added. Last time we looked, Anderson was still CEO of MySpace, long after the buyout.

Arrington listed some other "established" hit sites:

  • Writely (online word processor)
  • Ksolo (online karaoke, music sales)
  • TruVideo (transmits video to heterogeneous mobile environments)
  • Digg (IT news, comment)
  • Facebook (social networking for 18-35 age group)
  • YouTube (post your own short video)
  • Photobucket (video/photo sharing and networking)
  • Popsugar (celeb gossip, photo blog; getting 13 million page views a month)

"There are a lot of different paths to winning on the Web," Arrington said. "But these and other sites that are succeeding all have a few things in common."

Arringtons Common Attributes 1, 2 and 3: "The founders of these sites all love what theyre doing. They have a passion, and the site they run is interesting," Arrington said. "They also all know how to build community."

Next Page: Timing a major factor.

Timing a Major Factor

Timing a Major Factor

"You should be one of the first out there with your idea," Arrington said. "Its like the book about the purple cows [the best-selling "Purple Cow" by Seth Godin]: The purple cow is unique for a while, but once all the cows become purple, theyre not so exciting anymore."

If youre running a site that is a service for a business, a question to ask about your site is: Does your service remove friction from a process?

Arrington, an attorney/venture capitalist, is always on the lookout for new ideas on the Web. However, even if a site has what appears to be a good idea and presentation, there is another key factor that he always investigates right off the top.

"Web 2.0": What does it really mean? Click here to read more.

"The first thing I look at with a company is whether it has great founder dynamics—Ive seen too many good companies go down the drain because of conflicts between the founding partners," Arrington said. "Owners must get along and have a common vision."

Arrington also looks at the way Web companies hire staff. "Hire slow, fire fast is always a good idea," he said.

About funding, Arrington said that neophyte Web companies should never raise more money than they really need to run efficiently. "A new company should never raise big money—the owners should just learn to run lean," he said.

"And the perfect revenue model is not required; if its a good idea, the owners have passion and want to work hard, and theres a community, it has a good chance to be successful," Arrington said.

How to Get Large, Big-Time

As an example of a meteoric rise in the Web world, Arrington pointed out the quick success of Digg.com, which according to a couple of Internet information services has surpassed the long-established Slashdot as the No. 1 site for IT-related news and community comment.

"Digg has only been around for a short time [less than two years], yet now millions of people get their news each day from the site—somewhere roughly equal to the number of people who read the New York Times online each day," Arrington said.

"Facebook is another huge success—85 percent of college students are said to use it. Photobucket is still relatively new, yet it is already handling about 2 percent of all photo traffic on the Web," he said. "If you can do one thing well, word can get around very quickly, and you can get hot very fast."

YouTube.com, a do-it-yourself video posting site, has been in business for about a year and is doing gangbuster business. "Its probably worth $2 billion right now," Arrington said, putting on his VC cap for a second.

Next Page: Attributes of Web losers.

Attributes of Web

Losers "> Attributes of Web Losers

Arrington listed the following as attributes common to losing Web business companies:

  • They make poor founder team choices. "People who cant get along in working in a startup have no business working together," he said.
  • "Lifestyle ego" entrepreneurs. "These guys are eager to show off their money, demonstrate all the toys they have and tell you about all the places theyve been; theyre in it for the ego trip, not for the success of the business," Arrington said.
  • They raise too much money and cannot help but spend it.
  • They "over biz plan" their startup. "These guys spend way too much on consultants and overthink their business, trying to add too many sideshows instead of focusing in on just doing what they do best."
  • They try to scale up too fast. "Dont even think about how to scale up fast when you just get started; forget about it. Just service your customers the best way you know how, and the number of customers will grow if you do your job right," Arrington said.
  • They get listed on TechCrunch.com. "This is my site, in which I talk about all these things. You dont want to get mentioned on my site," Arrington said.

Web 2.0 label lacks meaning and magic. Click here to read more.

What Server Platforms Are Being Used?

"PHP [the open-source Web content builder] is by far the most popular at the moment, but Ruby on Rails is upcoming and gaining some momentum," Arrington said. "Java, of course, is there for serious Web apps, and some people have been doing interesting things with XUL/XAML."

Arrington said that Adobes relatively new Apollo and some desktop hybrids will begin getting mindshare in the coming months and years.

What Kinds of Sites Have Saturated the Market

"If youre going to start a new commercial Web site venture, you probably dont want to do it in these following genres," Arrington said. "Unless, of course, you have a really, really good idea. There are already way too many of these out there."

Here are those categories:

  • social networking
  • special bookmarking (del.icio.us)
  • videos
  • photos
  • blogging, podcasting
  • RSS feed readers
  • portals/home pages

Next Page: What opportunities exist now.

What Opportunities Exist

Now "> What Opportunities Exist Now

Arrington said sites that offer services to help businesses, individual customers or other Web sites are always going to be in demand.

"Things like [Web] platforms—if you have something to help other sites, thats a good thing," he said. Other needed online services include:

  • "Cloud," or online storage. "Hyper attention is being given to these kinds of startups now by VCs," Arrington said. "Were thinking this will explode next year. Microsoft, Google, Box.net, Yahoo, OmniDrive ... these are all coming out next year, and were nowhere near the saturation point."
  • Desktop applications
  • Office efficiency help in general
  • Identity services
  • Software development tools
  • Anything that will help deconstruct a market. "Theres nothing like taking a $500 million market and turning it into a $200 million market," Arrington joked. "Look at what Craigslist has done to newspaper classifieds."

Of course, newspaper owners arent laughing along with Arrington.

The Next Step: Moving Web 2.0 to the Enterprise

"When companies start taking the new stuff that Web 2.0 is coming up with and apply it to enterprise solutions, then well see another boom," Arrington said. "Enterprise Web services are so important, all the time. TechCrunch will be starting a couple of new blogs on this topic soon."

One more Arrington tip: "Watch out for Yahoos new Web e-mail upgrade this fall. Its [Microsoft] Outlook launching online; its less a back-end service and a better front-end experience—and you dont have to use Yahoos mail service to use it."

Check out eWEEK.coms for the latest news, reviews and analysis in Web services.

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