Tuesday, 7 June 2011

Groupon = Pets.com 2.0

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We at the Web 3.0 Lab are generally pretty positive about the capacity of social networks and social commerce. But it has become impossible to escape the reality of Bubble 2.0. Since last year, oddly after the Social Network movie, there has been a flood of capital to Web 2.0 firms in the US. In many cases these are solid companies that will likely return their investors many times what they put in.

But those are likely used up, and we are starting to see silly season. Groupon is now the most obvious example. Lets be clear here, Groupon is not Craigslist. It is a niche player in a market that will easily be commoditised and ultimately dominated by Facebook. Its social e-commerce at its most unoriginal and basic. The company is pretty much nothing but hype.

We are prepared to give it the name we think will most fit it: Pets.com 2.0.

But our bigger concern is that Groupon is a bad idea which will spook much of the investment community. Just as web firms (Google, Facebook, LinkedIn, Twitter) had to struggle to prove that they were not Pets.com, emerging social engagement firms may be stigmatized for years to come by Groupon.

It is essential that players in the new web be more mature and realistic to the investment community. We need to make it pretty public when we see firms like Groupon and Quora simply trying to turn a quick buck off the hype of the industry without really providing any new value to users.

The model of 2 guys build something in their basement, get some money, do an IPO and become billionaires was always the radical exception in the web. Most productive work is done either in collaboration projects without owners or inventors (Wikipedia) or in the context of pre-existing firms R&D. Start-ups certainly offer the potential to make the largest profits (like Facebook) and all firms have to start as start ups. But most start-ups will not return any value at all, and most value will not come form start-ups.

Groupon should be viewed as a cynical effort to harvest a trend, not as an indication that the web industry has lost its head.

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