TowerOne.com

Once upon a time there was a company with no credible revenue, who’s entire service is based on a social fad, has no technological advantage and that has no clear business strategy. Along comes a company with deep pockets who is desperate to create momentum and gain the initiative in the sector. The result is a very large investment which puts a very large valuation on a potentially worthless company.

Question: What happens next?

Answer: The second meltdown of the tech sector.

Whilst Microsoft’s recent $240million investment in Facebook may ultimately be a small but significant step forward for Microsoft, valuing the social networking site at a nose-bleed height of $15billion should be sending shock-waves across the web industry, an industry merrily heading for the cliff edge like lemmings. The investment is bound to feed expectations in the sector which in turn will feed an investment reaction based on fear - the fear of missing out on the next big thing. The result will be a flurry of investments in start-up companies that are either ‘me-too’ or hopelessly optimistic. Eventually the investors will realize that they have little chance of recovering their money, and like the Kings New Clothes, the game will be up and Web2.0 will go the way of Web1.0.

As it stands the common Web2.0 strategy appears to consist no more than rapidly building a user base and then sell the company to one of the big players or to sucker an investment company. Maybe we will have to wait until Web3.0 before we see solid business cases for start-ups in the sector. Plans based not on spin and rapid exit strategies, but based on solid commercial principles.