Web 2.0 on the Ropes. . . Kleiner Perkins Halts Investments
Whenever I meet with VCs lately I've noticed they have a growing distaste for Web 2.0 startups. The "Web 2.0" term, in connection with a startup, and as a collection of concepts, is very tired in this community.
For example, Kleiner Perkins Caufield & Byers, Silicon Valley's leading VC firm, has stopped investing in Web 2.0 startups.
"We have absolutely no interest in funding Web 2.0 companies," says Randy Komisar, a partner at Kleiner Perkins. He mentioned this during an after dinner conversation last week. He said he had recently told John Battelle, one of the organizers of the rapidly growing Web 2.0 Summit conference, that the term no longer had the same positive cachet it once had. In the VC community it clearly has a negative one.
For the organizers of the Web 2.0 conference, that must be a tough thing to hear, since it comes from one of the country's top VC investment firms. Mr Battelle, CMP, and O'Reilly Media, have created a highly popular and lucrative conference. They have even taken legal action to prevent others from profiting from the term "Web 2.0" and they have plans to expand their franchise to larger audiences.
I didn't get a chance to ask Mr Komisar when his firm stopped funding Web 2.0 companies. But we did talk earlier in the evening about some of the fundamental changes he is seeing in Internet trends. [I wrote about part of it here: "Aggregate Knowledge . . ."
It won't be just Kleiner Perkins that has lost interest in Web 2.0 companies. The firm is one of the trend setters in Silicon Valley, with a long string of massively successful investments over several decades. And Silicon Valley VC firms always invest in trends, rather than companies. They certainly won't be attending "Web 2.0" conferences, and without VCs attending, there is no point in startups showing up and preening for their next capital raising event.
Reinvent, redefine, and reprint
Web 2.0 companies will now have to reinvent and redefine themselves. And reprint their business plans. They should also remove any mention of "long tail economics."
I have a bad feeling about the longevity of that term in the investment community. It sounds a touch too W2.
Nixing anything "long tail" is an easy way to future-proof a business plan for a few months longer.
"Social graph" is doing great right now, so make sure you pepper your business plan with that term. "Social platform" still has legs. And "attention economy" is a ricochet term with a bullet.
. . . too 1.5?
Steve Rubel won't be crying for Web 2.0 companies. [The Web 2.0 World is Skunk Drunk on Its Own Kool-Aid] And other people are certain to find pleasure in the very possible demise of Web 2.0.
My line has always been that "The thing about Web 2.0 is that it is so 1.5..." Because Web 2.0 as a concept grew out of an intermediate time in the evolution of the Internet.
We are witnessing an emerging Internet better described as an "Internet 2.0" world, where technologies such as RSS have nothing to do with the "Web" yet are unique to this phase of the Internet. It clearly looks to me that we are building an Internet 2.0 world and anything "Web 2.0" would be a subset.
UPDATE: Tim O'Reilly replies:
Posted in comments at 3.51am.
Either KP is getting sucked in by the hype end of Web 2.0, and failing to understand what it's really about, or else, more likely, they are using another term for the same thing.
At the end of the day, there is a deep, long term trend towards the network as platform, and to applications that leverage the true strength of that platform. That's what *I* call Web 2.0, and I know that KP is still investing in that trend.
(They are, however, also taken with many other important areas, such as energy and the environment, that are increasingly distant from the web.)
But I think the real way to interpret this comment is to say that if a company needs to identify itself as a "Web 2.0" company rather than describing the problem they are solving, or the opportunity they are creating, then they are just playing the buzzword game, and aren't worth investing in, regardless of the buzzword!
UPDATE2: From Randy Komisar:
- - -
Tom certainly has stirred up a tempest in this tea pot, but that is good for the blogging business isn't it. As much as the controversy is interesting, it must have been difficult to hear me clearly across the table.
Tim's comments are more to the point. What is the definition of Web 2.0? Nobody would know better than Tim, but for me the moniker is getting threadbare and seems to focus backwards, not forward. I am looking for the next set of innovations - and I will let Tim name them since he seems to have a knack for it.
I am afraid that the noisy room may have garbled Tom's hearing. KPCB certainly has invested in some of the greatest "Web 2.0" companies like Amazon and Google. And we have selectively continued to fund terrific consumer internet entrepreneurs, like Paul Martino of Aggregate Knowledge who was the host of our dinner that evening. I am sure there will be plenty more, whatever you ultimately choose to call them :)
Reply from Tom:
Randy, my hearing was fine. You made the comment as we were getting ready to leave. We were all standing and you were just a yard or so away from me. We were all talking about Web 2.0 and how the term was over used and too many companies using it, and you said that Kleiner Perkins had no interest in investing in these companies.
My apologies if my article may have put you in a delicate position but I think that many of the reactions have been confusing the agenda of investors with that of publishers and marketers.
As for past investments, I'm sure that Web 2.0 had some meaning and Kleiner did invest in companies that would describe themselves in that way. And today, as you rightly point out, VCs such as yourself are interested in new emerging trends and technologies that the term "Web 2.0" doesn't capture, and that is perfectly understandable. VCs have a forward time horizon of five to seven years so it is perfectly OK not to be interested in terms used to describe unique qualities of older companies.
However, there are a lot of publishers and companies that have invested a lot in the term and have a strong self-interest to defend that term and make sure that it is seen to be current and leading edge. That has nothing to do with Kleiner Perkins' investment strategy and nor should it. They are two different agendas.
Please see Silicon Valley Watcher:
November 2006 - Web 2.Uh Oh Week in SF - Where are the Users?!
November 2006 - Tired of all the 2.0 hype? Here comes Web 3.0