Web Opportunities
A description of past and future opportunities in web businesses.
1995 to 2004
During the first phase of the web from 1995-2004 many individuals and businesses knew the internet was going to a big deal and set up web sites, but didn't have any focus when it came to their vision. Most of them weren't sure what to do exactly and didn't have any answers to fundamental questions like: Do we sell products? Do we show content? Where will the money on the internet be made? What will the internet be used for? These questions were somewhat of a moot point at the time because for the first 10 years there weren't a lot of internet companies that were actually showing profits and technology wasn't there yet anyway.We are now entering the second phase of the web where web site creation is becoming more focused, more purposeful, and more lucrative. This is all happening for a number of reasons:
 | Web sites are now more aesthetically polished. |
| Online marketing has become legitimized. People thought online advertising was dead after the crash of the banner ad market but the proliferation of affiliate marketing and targeted text ads via Google have reinvigorated the monetization abilities of web sites. |
| Companies are learning to brand their sites well. |
| The community potential of the web is finally being realized. |
| Online shopping has reached the tipping point where the online portion of a business is just as important as the B&M side. |
| The costs of building online businesses have come down dramatically. |
| Companies are better able to create synergy between their online side and B&M side. |
| There are better technologies available - many of them free. Examples are coding languages like PHP, MySQL, and AJAX. |
Types of Web Sites
The types of web pages that individual users, as well as huge companies, have spent their resources trying to develop can be broken down into 3 groups:- Content. (information-driven sites like Slate)
- Products. (Amazon.com) or services (Ameritrade)
- Applications. (Google, Mapquest, etc).
I believe one reason for this is because products and applications are the categories that most closely resemble B&M industries - they are both active processes where the customer is actually doing something. Another reason is because they are the more capital-intensive, mass-market industries which are the ones big companies want to look at. I believe content-driven sites have slipped under the radar screen because they didn't meet the two criteria I just stated. First, content-sharing isn't an active process. Web users who go to web sites for content are passive participants in the process - they just sit and read - while the web sites publishing the content are also giving out an intangible product which they almost always don't charge for. Secondly, the amount of money required to create content is literally nothing - anyone can create content (albeit not on a large scale) for free. It is somewhat easy to understand why content was ignored by the big boys.
Because the big companies have largely ignored content driven websites, this has been the area where individual webmasters have succeeded the most. There are countless webmasters out there who are running sites getting anywhere from 2,000 to 50,000 visitors a day. These relatively low numbers (compared to the Amazons of the world) have relegated these sites into the niche-market category where they have been safely sequestered from the manic attempts of companies to commercialize the web. And although these numbers aren't big enough for these websites to become household names, it should be pointed out that a web site that gets even 3,000 daily visitors is getting more than 1,000,000 visitors a year. 99% of these webmasters would not be able to attain this kind of scale in the offline world - mainly because the cost is too high. This environment of moderately successful niche sites has allowed webmasters to create businesses where they can make anywhere from $10,000 to $500,000 a year without generating too much attention from competition.
2005 and beyond
But as the web grows and the online advertising market re-accelerates, the days of content being ignored by the big companies are coming to an end. The big boys are starting to realize there is potential to make a lot of money when a web site gets the attention of millions of people and now want to come to the party. Notice some of the events that have happened over the past 1 to 2 years: | News Corp buying MySpace for $580 million |
| Amazon created 43 Things |
| Ebay buying 25% of Craiglist.com |
| MTV Networks, a unit of Viacom International, acquired online youth community Neopets.com |
| AOL buying Weblogs, Inc. - reportedly for $25 million. |
Even some of the buyouts which would fall under the applications category are driven by need for content. Look at Yahoo!'s acquisition of Konfabulator. Yahoo went to the trouble of buying this tiny company probably so it can push content to its users.
Since the beginning of the industrial era, big companies that decide to enter a new business area face the classic "Build vs Buy" decision - if a company wants to make inroads into a certain area should they build up a company from scratch or buy an established company? The advantages of buying your way in are quality, speed, and assurance. You instantaneously have a high-quality operation that has a big presence in the market and you know it will be a success (because it already is). The downside of buying your way in is that it will be more expensive to buy another company because a good company won't sell itself without making the buyer pay a large premium over its current value. The advantage of building is that it is cheaper than paying a premium to another company. The downside of building it yourself is that you may not have the skills to replicate others' success.
Looking at the pattern in content acquisition so far I think companies are choosing to buy. This may be because a lot of the stylized content, like Slate.com or Salon.com, simply can't be copied. This is why Google bought YouTube - because they knew they couldn't create a Youtube. This seems to be confirmed by companies using acquisition as the method of building non-content sites as well - for example: Yahoo buying Flikr and DialPad (a VoIP company) and Ebay buying Skype. This also makes sense because at the speed at which technology changes companies don't have time to build successful company to compete because by the time they are built they will already be behind.
Small Webmaster Advantages
Even though potential profits from many of the markets small and medium webmasters go after are too small for big companies to go after, there are also other unappreciated barriers to entry that the small guys have. For example, many big companies simply don't have the imagination to come up with some of the innovative content that the little guy comes comes up with, whether it is the biting criticism of Maddox or the many humor sites out there. Big companies, for some reason, also have absolutely no interest in community sites, whether they be pure forums or regular sites that have community interaction. The only reason I could think of is that big companies love to control things, like what their customers want, what they buy, what they think. But users of community-based sites get their needs defined by the other people in the community and big companies instinctively don't have that "hands-off" mentality needed to run a community site. But the internet is mainly a communication tool and it would be stupid for the big boys to categorically label community sites as unattractive so they will probably change their stance on this (the MySpace buyout seems to be an indicator it is changing).Small webmasters also have the luxury of not having to worry about bad PR. This may not seem like a big advantage but the scare of bad PR is a straightjacket that restricts many big companies from getting into areas that will ultimately piss someone off. The little guys could care less. For example, the big education companies like Kaplan.com, princetonreview.com, and all the other generic sites can put out the standard boilerplate content about colleges but do you think they would have the balls to put out a site like ratemyprofessor.com? Never.
Future potential
So what changes will there be for the average webmaster? I believe the operating environment will become more competitive in the future. Bigger companies will look to enter some of the markets that have traditionally been fragmented niche markets but are collectively very big and lucrative. This has already started in the past couple of years with blogs and photo hosting. Amateur and potential webmasters will also want to enter the webmaster business as they see more sites making money on the web. You can see the affects of competition whenever a new idea or subcatogory of web sites comes out. In 2003 it was the "rate my pic" sites. In 2004 it was reality TV forums. In 2005 it was the poker sites and ringtones. In 2006 it is Web 2.0. In 2007 it will probably be some content-aggregator sites, like oodle.com.But even though competition will be heating up, almost all small websites won't have to worry about competition from big companies for the foreseeable future. Most medium sites that generate between $100,000-$500,000 probably will too. Multi-million dollar companies simply don't want to spend the time or money to go after these markets. Competition will likely come from like-minded, medium-sized ventures. An example of a likely transaction would be a small-but-unique investing site being bought out by a company like Motley Fool as opposed to someone like Merryl Lynch.
Another change is the possibility of the bigger webmasters possibly being bought out. Someone who works at Party Gaming, owner of Party Poker, said that after it's IPO Party Poker may start buying up some of the gambling portals. Online gaming companies make big money operating their sites but they also pay a good chunk of their revenue to gambing portals that generate sales through advertising. The gaming companies may want to make that profit too and start buying them out. In business circles this is known as "vertical intergation".
Since the internet changes so quickly it is hard to have long-term visibility about the opportunities on the internet, but it seems that for the next few years the small and medium sites will continute to fly under the radar screen of big companies. And now at the beginning of the second phase of the internet webmasters have all the tools like cheap hosting, cheap coding outlets, free template designs, improved code (CSS), accessible backend (CMS, mySQL) so there is no reason a determined webmaster can't have a good-looking, highly functional, and well-branded web site. This second phase of the internet is where accessibility and opportunity meet and will present ambitious webmasters with even greater opportunities for success than ever before.
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