There are Web 2.0 companies popping up left and right, every self respecting Ruby on Rails and PHP programmer must have one. Following these startups as well as what the big players does has become a national geek pasttime (detailed knowledge of these thing is a must to be cool in a Web 2.0 crowd!). The vast majority of startups will fail, and the good times where millions of venture dollars are easily available and where Yahoo and Google are on an aquiring rampage are soon over. So what is needed to create a successfull web venture? Open any management book or read any startup blog and they will say “team, team, team” and after that “contacts, contacts, contacts”, so I am going to skip these obvious ones. Instead I am going to outline the 3 things I think that any web venture needs to become a success…
Offline Advantages
Almost anything you have online can be easily copied, almost any code and feature can be copied. This can be done by the big guys or by some well fincanced startup throwing money (and indian programmers) at the problem, and it can also be done by a couple of overachieving Computer Science majors at Standford (it has been done before). So a bigger moat is needed to protect what you got and to set you apart from all your competitors. These offline advantage can be patents and trademarks (if you have the money to protect them), hardware (Googles gigantic server farms and network for example), fame (Guy Kawasaki and Truemors is a perfect example) and contracts (signed contracts with partners, suppliers or customers that brings you some unique advantage). All these things are hard to copy and will get you an advantage both when it comes to protect your position and beat your competition. It is also really going to help when it comes to the valuation of your company.
Advantages of Scale
This works great for Google, MySpace and Wal-Mart, so why not for you? It is not a given for a startup to reach the point where they are big enough to take advantage of their size, but it is a must create a web venture that is successfull in the long run. Advantage of scale comes in many forms and in many diverse areas. If you set up your own server infrastructure (instead of going for Amazon EC2) you will get better deals from the hardware suppliers the more you buy. If you have a large number of users you will get more usefull behaviour data you can use to improve your services, and you will also be able to sell more advertising. The bigger and more poupular your site is the more free PR you are going to get, etc etc. Again, this is hard to copy.
Speed of Development
As stated above all code can be copied, all features can be copied and all designs can be copied (as AOL did with Yahoo’s design). But only things that already exists and are released can be copied easily. To copy your plans and your future roadmap is not as trivial. Therefore it is critical for a web startup to be able to move quickly and constanstly improve, add new feature and services. Everything you develop is just one step of the overall masterplan for world domination. That way you can leave the copycats behind and stay #1. This means that you constantly need to think 3 steps ahead and know what will be your next step. This also will save you from the worst panic when the competition releases some new hyped feature.
Why isn’t Data or a cool name a must-have?
I haven’t mentioned Data as one of the must-haves. One reason for this is that a lot of the advantages of data are part of the “Advantage of Scale”, ie the more good data you have the better. Another reason is that data in most cases can be copied (if it is in HTML format is can definitly be copied), unless it is protected by contracts (ie an Offline Advantage). Another thing I haven’t included in the must-haves is the cool name factor, something that seems so important in the Web 2.0 world. A cool name is great, a cool name is good, a cool name that you can also buy the .com domain for is even better – but it is not absolutely critical. Anyway, there are many good posts/articles/books about that subject. But a cool name alone does not equal success.
Quite a process to be able to comment here!
But I found your article interesting enough to do it anyway =)
You’re touching a number of interesting points. I’ve thought a lot about these kind of problems. What to do when your business is all about a cool webap, and the world is full of people that can make their own versions famous faster than you…
I think it’s all in the users. No one can copy your user base, that’s your competitive advantage. How to find users is something completely different =)
You are right user bases can not be copied. I think that it is important to think of the user base not as just registered users, but as active users. I am a registered user at 100’s of sites without ever being active at them.
Another thing that helps in making a successfull web app is to be in the San Francisco area of the world and to know the right people there (or here, since that is where I am right now). It is sad but true, the influencers are almost all here. It is easier to be written up in the right blogs if you happen to meet the blogger at some event.