Okay, I admit, there are far more problems with Web 2.0 than simply two, but there are two in particular that bug me. The first is the general idea that it’s okay to not have a business model from the get-go. The second is the idea that Web 2.0 will be funded almost entirely by advertising. I think both of these things are very wrong.

1. No Business Model? No Problem!
This one drives me nuts every time I see it. Dead 2.0 nailed it today when he ripped apart an interview with venture capitalist Paul Graham. In fact, I think it might be Dead 2.0’s best post yet. Anyway, I don’t understand why so many people think it’s okay to figure out a business model later. There can only be one Google, can’t there?

I’ve been to countless seminars, courses, speeches, and other events with really incredibly smart business people, and I’ve never heard any of them say it’s okay to figure out how you’re going to make money later. If we had taken that approach with Paramagnus, there’s no way we’d have made the finals of VenturePrize or won the Wes Nicol. At no point in the training sessions did we hear “make something people want first, then try to make money off it later.” Like Dead 2.0 says:

Great. I would like a flying car, and a lasergun. Also, a Web site with all the news, music, porn, and copyrighted videos I want, and it should all be free. I want that. Please build it.

I think this is the single biggest problem with Web 2.0. I look at it this way: the original bubble burst because you had lots of companies with no products (seriously, there were lots of companies who did something, but you weren’t sure what) and no revenue streams. With Web 2.0 thus far we have lots of great products, but we’re lacking in the revenue stream department.

I think both are required to be successful.

2. We’ll just sell advertising!
I don’t know when it happened, but somehow the world thinks that advertising will be the key to monetizing all of the new Web 2.0 products. Scoble said this as if it were plain fact today: “Web 2.0 is largely funded by advertising.” Maybe that’s true right now, but will it be true in the future? For some reason, I just have a gut feeling that advertising is not the key. Scoble’s right, advertising is an audience business. So what happens if your livelihood depends on advertising and your audience is dwindling? You’ll probably do some stupid, desperate things to keep the audience. That can’t be good for consumers.

I’m reading James Surowiecki’s The Wisdom of Crowds right now, and advertising in Web 2.0 reminds me of the section where he talks about plank roads. He uses it as an example of an information cascade. Basically what happened is that in the 19th century, a couple of entrepreneurs came up with the idea for a plank road, it seemed to solve all of the major transportation problems of the day. This led others to copy them, and soon there were hundreds if not thousands of these plank roads. Everyone thought plank roads would change the world! They were a panacea! The problem is that they did not last nearly as long as the original creators expected them to. Plank roads weren’t really a panacea. They simply covered up the real problems for a few years.

Is advertising the same? I mean, Google ads are great, because they are usually relevant to what I am looking for. But you can’t put them everywhere can you? Once you leave the web page, you’re screwed (unless Google comes up with some amazing new technology, which they might).

Still, I can’t help but think that advertising is the plank road of Web 2.0 – covering up the real problem (no business model) for a few years. If someone isn’t willing to pay for your service or product, is it really worth offering?

Conclusion
So there you have it, the two biggest problems with Web 2.0 according to me. I’d love to be proven wrong, but I don’t think its going to happen. To say that you’ve created something of value, you need a way to determine whether or not it has any value. Having someone pay for what you’ve created has worked for hundreds of years – why should it change now?