IP Democracy: Low Startup Costs a Feature of Web 2.0

Tim O’Reilly cites Jeff Clavier’s point regarding the low cost of delivery of Web 2.0 applications. “This new generation of applications is built on $50K to $100K,” writes Jeff. Tim agrees that, “for now [this is] very true,” but adds that “[o]ver time, this will go up.”

Jeff refers back to an earlier post of his, which in turn points to another by Joe Kraus entitled “It’s a great time to be an entrepreneur,” both of which discuss why the startup costs of software ventures have dramatically dropped. Reviewing their posts made me want to hear more from Tim about why he believes that over time, startup costs will go up, by how much, and what the implications might be.

Jeff adds some cautionary words for anyone looking to make a quick buck on a small investment in a Web 2.0 startup:

So is it the era of the “disposable startup” ? A company that develops niche functionality of value to a community that will monetize through advertising, and will ramp quickly to being cash-flow positive and recoup the modest investment it took to start ? And then run for a while, and either grow enough to be acquired by one of the “big boys” or actually create a real opportunity that VCs will fund and help grow to $50M to $100M in revenues? And if it does not work, well it was “just” $50 to $100K - trash and move to the next?

Hmmm, don’t think so. First, it is not because it is cheap that it is easy. Second, not everyone will be bought be Yahoo or Google for top dollars (some might get a few million dollar acquisitions, and have an interesting job building their product with the means of a larger company - nothing wrong with that - but noone makes money on these). Third, you still need to build some level of defensibility and differentiation - and not shoot for the path of least resistance (distribution was cited often as a key factor for search engines). Fourth (anyone)?

Posted by Mitch Shapiro on October 3, 2005 2:04 PM to IP Democracy