It’s has been a fair while since my last post, as I’ve been grappling with some interesting strategy issues for a client project.

However, I’ve been having a few conversations with friends and colleagues about the likely impact of the recent economic crisis on the ‘Web 2.0’ scene. These conversations reminded me of a paper that strategy guru Michael Porter wrote around the time of the first bubble, which was fairly prescient then, and remains so for the current environment:

It is hard to come to any firm understanding of the impact of the Internet on business by looking at the results to date. But two broad conclusions can be drawn. First, many businesses active on the Internet are artificial businesses competing by artificial means and propped up by capital that until recently had been readily available. Second, in periods of transition such as the one we have been going through, it often appears as if there are new rules of competition. But as market forces play out, as they are now, the old rules regain their currency. The creation of true economic value once again becomes the final arbiter of business success.

(From Strategy and The Internet, Harvard Business Review, March 2001)

We will undoubtedly see considerable carnage among so-called Web 2.0 start-ups (and even some more established entities) as private equity dries out. While that will be painful for those concerned, it will – over the medium term – be good for the industry, as it will weed out businesses with poorly conceived revenue models and customer propositions, and unsustainable business models.