Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Monday, October 17, 2005

The Problems With Web 2.0, Pt 2: Geeks (New) vs Geeks (Old)

OK. While we're on the subject, another big problem with Web 2.0 is that it's industry economics are those of natural monopoly.

This is in itself not a bad thing; but it becomes one because as Web 2.0 becomes the consumer interface to Media 2.0. That's because mass media industries are often natural monopolies, sometimes legislated to become oligopolies (radio, newspapers, tv, etc). What happens in natural monopolies? Well, innovation diminishes rapidly, in both rate and kind.

Why is this a problem? Well, to an extent, it's already becoming one. All across the Valley, entrepreneurs are setting up shop...with the hope of getting acquired by Yahoo, Google, eBay, or FIM (in roughly that order).

I think these are kind of the wrong incentives for entrepreneurs. What made the Valley cool was it's refusal to think small, and do truly disruptive things. But getting a small change acquisition to essentially extend a Yahoo/Google/etc product line sets incentives for incremental, not disruptive, innovations and models.

Make no mistake - the incumbents have a far less powerful incentive to be truly disruptive than new plays do, if only because it will probably cost them a nice hit to, at least, their top lines. This is why most 2.0 acquisitions have not exactly resulted in post-deal fireworks.

At the same time, as it becomes more and more difficult to compete with the incumbents on any meaningful dimension, and assuming the IPO window stays largely closed, new plays become narrower and narrower in their strategic focus.

In fact, it's already happening: many of the latest plays which we all think are extremely cool are also thinking very small, relative to the bubble, the Valley in the 80s, etc. And because there's not a lot of senior guys (VCs, etc) in the Valley with media industry experience, these resources may never be fully capitalized upon.

What's the answer? I don't think there are any easy ones, at least in this case...

-- umair // 8:17 PM // 2 comments


"Make no mistake - the incumbents have a far less powerful incentive to be truly disruptive than new plays do, if only because it will probably cost them a nice hit to, at least, their top lines."

i'm not so sure about this. disruptive innovations are easier than ever today, and i think smart big companies embrace this strategy to both (1) defend their market share and (2) take on larger competitors in seemingly different industries. case in point: ebay's acquisitions of paypal and skype; both are meant to acquire disruptive innovations, and let those disruptions grow, not make them conform to the ebay business model (and hence transform them into sustaining innovations). this is, presumably, why ebay has left paypal largely alone and unintegrated, and why there is good reason to believe the same will be done with ebay.

along the same lines, oracle recently acquired innodb, an that is part of MySQL, the open source DB. in my opinion oracle knows mysql is disruptive and hence wants to capture as much of that market as possible while continuing to develop oracle so that it can satisfy the enterprise-level database market even more.

anyway just my 2 cents.
// Blogger kid mercury // 2:37 PM

It raises the issue on monopoly. Does Google have a monopoly on search? Is that a good thing? And are these new new thingy things going to challenge that? I doubt it.

I don't think this is a new paradigm, all it is, is a new way of giving people what they want. The thing is, some of these new shiny services are not doing that, they are giving people what they already have but with a bit of lick and polish.
// Anonymous Anonymous // 10:23 PM
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