Saturday, February 16, 2008

Brush aside the ashes and kneel before Zod no longer

The tectonic plates of the Web are moving again. Some people say the Web 2.0 bubble is going to burst reminiscent of the 2000 Internet bubble. Many of the dynamics are the same: the money being thrown at sites that are little more than ideas will dry up; early exits at silly valuations will diminish; trendy sites that are cool but deliver little value will fade away. User aggregation as a business model will again fall from grace and Web 2.0 as a category will disappear.

What will emerge is a new generation of sites and applications that incorporate the characteristics of Web 2.0 – social networking, data tagging, rich media content, mashable functional components, and immersive user interfaces. The sites that survive and emerge as the new guard of Web properties will have a monetization model that drives real and growing earnings.

Like all generational transitions some past participants will die out, and some past leaders will fade to the background. I predict that Yahoo and Microsoft will have little presence in the next round of Web apps. Yahoo was the early leader in Web applications and to this day is far and away the market share leader.
You could make the argument (as Tim O’Rielly does ) that Microsoft is purchasing Yahoo to consolidate a dominant position in Web apps. Statistically this is true but a closer look at Microsoft yields a different story.

Microsoft has been working through a 6 month re-org that has consolidated the Online Service Group and the Windows Business Group under Bill Veghte.
This puts the Web assets into the group responsible for SMB, and SME software products. This group lives and dies by software license sales to business customers and will find it difficult to advance an ad or subscription recurring revenue model. Worse it is consolidated under Senior Software Architect Ray Ozzie who has always had an enterprise software view of the world.

Yahoo itself took its eye off Web Apps some years ago when their lead architect Zod Nazem shifted his focus to project Panama, an advertising targeting engine. For the last several years search and advertising has consumed Yahoos focus and resources. The death nil for Yahoo apps came when Zod left last June.
Yahoo still has market share but is demonstrating no leadership.

Microsoft is aligning around two pillars: 1) software and 2) search advertising. When acquired, Yahoo will be folded into pillar (2) - the search advertising group - headed by Senior Vice Presient and former aQuantive CEO Brian McAndrews. Microsoft and Google have both done the calculus and determined that their growth lies in capturing the increasing flood of online advertising money.

They will continue to be players in Web apps but it will be far from their focus. This leaves the field wide open for the next generation of SaaS and Web applications. Once again the applications of the new Web will emerge out of the ashes of too many failed companies (and millions of Venture dollars) that chased the latest trend – this time Web 2.0. And hopefully, this time the Phoenix will sport labels other than Microsoft, Yahoo and Google.

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