Just read on twitter that someone sent congratulations to a startup that got 1.2 Mio USD funding. For this company it might me good, but what does this mean in general?
One reason for the financial and economic crisis is, that businesses were overfunded. Banks and VC are spending millions of dollars just to be the one who is in. That might be good for small startups and maybe the revenue comes, and if not, it was a minor risk.
But when it comes to 1.2 Million USD, or even more, like Twitter is getting again and again, it might be a good idea to just ask for the business plan. Its a miracle for me why twitter is getting VC money even if they say "we don't have any idea how to make money out of it."
Even if you have a create, grow and sell strategy, at the end ther must be some return on the investments. Fort a long time VC and banks were giving away money for everything. We know this already from the last internet bubble. It seems to happen again. Startups are not looking for a sustainable business plan but for funding. And investment companies looking for be the first to invest instead of making a long term investment.
Even Facebook isn't making profit, but it seems to generate some revenue through advertising. But advertising isn't everything.
One of the simple questions I learned when I was studying economics was "What is your product and how you think you can sell it?"
The important oart is selling. Most social networks are failing after a while because they are not products. There is no real benefit people would like to pay for. Flickr is giving you storage and is focussed on pictures. No disturbing poking. You can buy Gmail storage - its a real product, even if its virtual. LinkedIn is offering you premium services and contacts - something special.
But Facebook and Twitter isn't offering a particular service. Its jut a platform, a playground. Ads on twitter would be pretty easy, but the main reason why they don't have ads is: Just a few geeks are using twitter. It's totally overrated and overhyped. I like the service and the concept, but I also like podcasting and just a minority is using what media called once the Radio Killer.
I predict that in 2009 there will be a clearance of social networks and services without a product sense. There is just not enaough cash anymore for investing, and once you are running out of money you take a closer look on what you buy and invest and what the return is. Market share and page impressions are not important anymore. Value ist more important, I think.
My Dog Pimmy
5 years ago