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Can Web 2.0 companies make money in Asia?

June 29, 2006 by Bernard Leong  
Filed under Special Commentary, Web

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Web 2.0

Web 2.0 is the new buzz word in Silicon Valley at the moment. You hear about Google, Flickr, Wikipedia, Engadget and many other companies that emerge from this new trend. In this article, I constructed three arguments to demonstrate that it is nearly impossible for Web 2.0 companies to make money in Asia, particularly our hometown, Singapore.

Web 2.0 is the resurgence of information technology after the dot.com bust in 2001. It is currently the trend where venture capitalists in Silicon Valley are pouring large amounts of capital into something that not many can fathom what it really is. Different experts have tried to define what Web 2.0 really is [1, 2]. The central focus is no longer on the internet, but the management of data that can add value in building large communities (user base) and create a synergistic push towards congregation of information systems. To give the reader the examples of Web 2.0, here are the most notable ones: Google (search engine), Flickr (photocasting), Podcasting, youTube (video), Blogging (web publication and citizen journalism), Linkedin (social communities) and Wikipedia (open source database and resource to information in the world).

For the simplicity of our discussion, I decide to adopt the Wikipedia’s definition of Web 2.0 [3]:

The term Web 2.0 refers to a second generation of services available on the World Wide Web that lets people collaborate and share information online. In contrast to the first generation, Web 2.0 gives users an experience closer to desktop applications than the traditional static Web pages. Web 2.0 applications often use a combination of techniques devised in the late 1990s, including public web service APIs (dating from 1998), Ajax (1998), and web syndication (1997). They often allow for mass publishing (web-based social software). The concept may include blogs and wikis.


Tim O’Reilly’s visualization of what web 2.0 is on 30 Sep 2005. The slide is created by Markus Angermeier on November 11, 2005.

Of course, the real interest for this entry is to ask the question whether this new trend will take off in Asia. Singapore, being the second place after the US, is one of the hotspots in Asia when it comes to adopt new technologies. Despite our quick response to new technologies, the web 2.0 trend is not sunk into our current culture. Taking a cautious and yet conservative view, I have formulated three core arguments why it has problems taking off in Asia and demonstrate whether it really possess a business model that can generate new revenue.

  • User base is easy to create but sustainability is a problem: Let’s start with blogging, friendster and linkedin, all of these have something in common: they can help to create a big user base in a short span of time. Viral marketing can help to foster the formation of new communities in the internet. However, the issue is the following, how do you sustain the user base? What are the conditions you need to ensure that the users will come back again to your site? While I agree with the altruistic reasons behind setting up these interactive community websites, I have my skeptisms. How do you actually generate revenue by harnassing the user base? What are the possible business models that can help to transfer the large user database to create value for your business? That comes to my next point.
  • The business model is weak and lacks avenues of revenue generation: Most Web 2.0 companies start off without revenue. There is a common avenue for all these companies to generate revenue: the answer is advertisements. The popularity of google adsense has created an euphoria of having many website owners or bloggers to create ads that will generate cash via a click. I have not seen any other business model other than putting ads either by the use of adsense or some other traditional approaches in getting a sponsor to put an ad in your site. There is a point where the market saturates by adopting this revenue generation model. At the moment, most web 2.0 companies will need the advertisement model until they can come up with something better to generate profit. The other approach which I foresee them adopting is by charging subscription.
  • The technology of web 2.0 is not a breakthrough from the past: Let’s take a step back in looking at the technologies which are widely described in Web 2.0. For example, blogging is touted to be the new way to online publication. If you have followed back to the days of Web 1.0, you will have heard of online diaries, which did not go into fashion. Then in blogging, people describe the advantage of feedback from other people in their comments section. Again, this is not new. It is just an online forum, except that the first post is glorified and the comments take another page. What I agree is new, is the way how information are organized together by the tools of RSS feeds, Ajax and Ruby.If you think about it, the real difference is not in the technologies. Web 2.0 differs from Web 1.0, because the content in the internet has undergone a transition from being static homepages to platforms where it encourages end-users to interact with each other more dynamically via the exchange of different data. The real technology which brought about web 2.0 is in the optic cables which allow faster transmission of large chunks of data that was not possible a few years back. The problem of slow transmission is the cause of the downfall for most of the older versions of youTube in video streaming.
  • Lack of Innovators in Asia: Yes, there is a gold rush generated by web 2.0. If you remember Darius’ earlier piece on trend setters and followers, you will know that the real entrepreneurs are not the trend followers but the trend setters. Instead of joining everyone on the gold rush on the web 2.0 movement, we can sell the “pants” to the gold diggers, in the form of developing new innovations that can help to transmit data faster and efficient.In Asia, we lack innovators, people who could tinker and build new engines. Instead we have a lot of followers. Unless we have a stronger base of people who can innovate on existing technologies that emerged from Web 2.0, I can’t think of products that can be pushed to market and generate profit in a short time.

In a very short note, I am asking the question, “Where is all these web 2.0 hype going to?” I do think that there is an opportunity. In Singapore, we are already afraid to share information with each other on business and innovation. How are we going to break that cultural barrier if one of the key purposes of Web 2.0 is to tear down boundaries? Perhaps, if someone can counter the reasons that I give, it will help us to think of new business models that can bring the wave from Silicon Valley to Singapore.

References:
[1] Tim O’Reilly, “What Is Web 2.0: Design Patterns and Business Models for the Next Generation of Software“, 30 Sep 2005.
[2] Dion Hinchcliffe, Web 2.0 Blog.
[3] Wikipedia on Web 2.0

Related Articles:
[1] Wannapreneur, “Are we heading for another Tech Boom (and Bust)?“.
[2] BL, “Aggregators, Blogs and Credibility: The “ABC” for Citizen Journalism“, Singapore Angle.
[3] Justin lee, “Want to see a Tornado? YouTube DOUBLED in one month!“.
[4] Bjorn Lee, “Web 2.0: The New Rock and Roll”

Follow ups to this one:
[1] Justin Lee, “50 People who Matter and 10 who Don’t“. I have to say that it is a passionate response on my skeptical take.
[2] Der Shing, “Evolution of dot com in Singapore. What worked and what next?“.

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Comments

  • Ken
    With respect to Singapore, one factor that serious undermine the ability for web2.0 ideas is the market size. The fragmented markets in Asia created by anguages, cultures, history also limits market size.

    You may say that it is the Internet after all so geographical factor isn't important. Well this had been proven quite wrong.

    From the very start, geography determine the model a startup can use. If you look at Web2.0 concepts, alot are about linking people together, local information. Sure the idea can be generic but having a lare base of user to kick off helps a lot.

    Then we look at getting revenue, advertisers. In a small market you get small revenue. Period. Sure you can cut deal over the net but many deal are still done face to face and locally.

    Take the blogger mention above. Would someone outside of Singapore buy ads on her blog?

    Ditto with investors. I read somewhere that even Australian flies to US for investor.

    China might be an exception. A big market base and a common language. There are many underlying problems to solve but some interesting models might appear.
  • Hi BL,
    to answer the question of whether are there "any other new models of revenue generation?"

    My answer to that is I don't really has specific answer to it. Those new business model is a matter of existing model been creatively combined and its component rearranged to form another business model, and therefore I believe for those new business model will require "a look and see" attitude to verify its potential. Of course, market research will yield its market potential but sometimes, the market is irrational and unpredictable. Even the Ebay founder doesn't guarantee that its model succeed when he first start out, and that most probably that why he keep his day job while working to start ebay.

    After searching the internet, I find a site that explain virtually all the business model on the web written by a professor.
    http://digitalenterprise.org/models/models.html

    These site mention about several business model
    Brokerage
    Advertising
    Infomediary
    Merchant
    Manufacturer (Direct)
    Affiliate
    Community
    Subscription
    Utility

    My observation is that most are just combination of one or many of them.
    To see it this way, the community could probably use advertising or somehow brokerage model.
    But advertising could use brokerage (commission) model.

    Since if that the case, I could sense that there are tons of ways to generate new models of revenue generation but then there is no guarantee that it will be profitable (since it is new anyway) until it been test on the market.

    Those creative use of it will require combining those business models.
    brokerage => advertising => direct .
    or
    Community => direct => affiliate.

    Just imagine the permutation of several business model will generate. However, how the business will fit into the business model remain to be see. But by looking at this way, perhaps new ideas could cope in.

    Which mean that those revenue might not be cash, but may be in term of knowledge, content or lead generate by the user or vendors that can be used to generate revenue eventually. For example, selling these intangible assets to corporate/marketer who need them.

    This unfortunately lead to the complexity of the business model. The business model is supposed to be simple and understandable. Unfortunately, I observe that the business model will become increasingly complex because of the relationship between user , firm, partners become complex.

    For example, look at XiaoXue, the Singapore Blogger, who earn $$$ using blog and advertising for other company. In order for XiaoXue to become even more popular, she might make a deal with the web search company to put her on high search profile if the search string is "blogger" rather than XiaoXue. And XiaoXue is also a good advertiser for blog company to generate web presence or investment.

    So indirect revenue generation could be new business model .
  • Hi,
    Cobalt, I live in Singapore but get to fly here and there. So I pretty able to observe and reflect on things that interests me. I like to see and explore thing as they really are not what other people want it to portray to be. With information overloading and tons of "false" info disseminate everyday, no wonder the society is getting more complex and chaos. The internet is both a blessing and a curse, it makes some thing easier but other thing harder.

    No, I currently doesn't have own blog, but I find it more interesting to comment on someone's blog. It's good to learn from someone as much as someone can understand my viewpoint.

    Of course, I could be wrong about my view, but then at the end of day, I could have many perspective to ponder about.
  • In my opinion, the Web 2.0 thing is just over-rated. The Dot Com burst was caused by over-optimisim and general loss of common sense in both startups and investors.

    I guess now investors should have become more prudent. Not sure if the same could be said of the startups.

    No matter how many cute logos and fonts you throw into a website, if it does not have a solid business model (and I typically do not feel that web advertising is solid ) its just not going to make it in the long term. What happens is that the burn rate for online startups are so low that they typically manage to stay alive longer than they otherwise would have in other industries. What I see as lacking are business models that address a specific need which people can and will pay for. That's survival principle #1 for any business.
  • BL
    Claris,

    I agree with you that tradition business sense is still important in dealing with new trends of innovations and technology business. What I believe is more important, is for the people who engage in these new innovations , to try to think of a new business model to consolidate the user base towards revenue generation. At present Web 2.0 model can only cater to the advertisements and perhaps, subscription. The real question will be, are they any other new models of revenue generation?
  • Interestingly, when online advertisements (especially adsense) become common, guess who becomes the biggest winner? Google!
  • Hi Claris,

    You write very interesting comments. Are you here in Singapore? Would be interesting to read and find out more about you if you have a blog. :)
  • Claris
    And so the question is, can web 2.0 earn money in Asia ?

    So let assume that web 2.0 means social network where user access its service for free. It still possble if it is able to generate traffic and has third party advertising useful thing.

    But I wonder advertising mode is sustainable since it become commodity. To earn money might mean to be different enough to be able to license their technology to others. This is the same strategy that Google used. They improved their search algoritm and use the "mass users" to validate how good their technology is. And their technology can be licensed to corporate since it is proven and reliable.

    Unfortunately, nowsaday, a lot of web2.0 site basically offer incrementally improvement over the others , and most use advertising mode as source of revenue which become commodity (If you can do it, other may do it).

    With no technology differentiation and licensing, it really to sustain profit through advertising.

    Advertiser come and go, and you have no control, and you may be hold responsibility over credibility of advertiser and may lose credibility if the advertiser doesn't deliver since you have affliate with the advertising company.

    But with technology you own through licensing, you differentiate yourself between me-too site and may even use to attract user to your site.
  • one suggestion, claris, is that maybe you shld blog and use trackbacks to link back to Bernard's blog cos u r already blogging in ur comments. =) Many blogs actually have a no-comment policy as it promotes the conversational exchange and gives more accountability to the commenter/ responder.
  • Claris
    Hi, BL. That's very nice article that expose the actual working of so called "web 2.0".

    Web 2.0 is basically a trend of the time. As like any business jargon like outsourcing, business process regineering. It will soon replaced by other forthcoming thing. Last time, it is XML, and now it become commodity, and so the hype die down, and no more coolness in mentioning xml now. The industry will keep inventing new stuff and name for repackaging existing technology and concept and hopefully earn $$$ while doing so. So web 2.0 is now implying that the site is a social networking stuff and using Ajax technology, and thus considered the "in" thing.

    It is no different from few years ago on what it called internet bubble where everything is claimed to be new economy. That the way of business fundamental is changed because of new economy. Potential over profitability. Coolness over sustainability. But after the bubble, everyone realized that "new economy" fueled by growth of internet doesn't alter the business fundamental as found out by Michael Porter, the harvard-famed professor of "Competitive Strategy". Profitability is still the fundamental of all business ultimately.


    I feel it is good Singapore doesn't follow Silicon Valley where much of today technological innovation is taking place, and so is the hype.
    True, we see new framework, new ideas and even very cool site coming out almost everyday. But then, if we have to realized coolness doesn't always translated to profitability. What most site do nowsaday is take on web 2.0 moniker because it will get notice by users who just love the "in" thing.

    Those thing are often heavily marketed and touted by the industry press because often behind these "great site" lie the Venture capitalist who pumped tons of money into it, and has great relation with the press.

    Nowasday, high profile is the key to get VC notice or even investment. The day of IPO trend has subsided, and now getting high profile through new technology moniker is the trend.

    Not to say these web 2.0 technology and innovation is not important, but astute application of it is important as not everything can be solved using web. It is good to have a word processor running off the web and edit blog, but wonder if it is good idea to play back video over the web for elearning rather than streaming it to play locally especially in corporate where bandwidth is limited to department. And in fact, the essence of AJAX is to make an web application behave like a highly interactive desktop application while using web's presence.

    What Singapore should need is to really make use of these technology to build really useful site for the user, and not to merely demostrate these trends. What we needed is develop thing to take advantage of any platform,be it desktop, mobile and web that create value for customer.

    Simply following the trend will limit creativity and imagination. Ultimately, anything count towards creating a good user experience is much more important. The focus is to create value rather than coolness.
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