Web 2.0 kids make me worry about the future.

In my younger days, I used to mock my father about how far he is behind the time, the fact that he can’t touch-type (he’s a classic two-finger, and on occassions where he’s striving for productivity, three-finger, typist) or really grasp any idea of what this whole internet deal really is. Occassionally, he still asked me whether sending me email across the ocean, from Taiwan, would cost me any extra fees (naturally, he’s more worried about me having to pay for receiving the email, than the fact that he might have to pay to send email… I love my dad).

It’s an old, used, beat-up cliché, but I never thought I would one day consider myself closer to my dad’s category rather than being one of the hip kids that’s ingrained with all of the happenings in the tech world. The fact remains that I’m moving towards being one of the old geezer of the internet. Even though I’m still a notch below thirty, I have been in this tech bubble for nearly a decade.

This realization was made even more clear to me, as I was having a conversation with one of my friend’s friend’s friend, no doubt a connection that’s just enough zip codes apart that I’m likely to run into him at a coffee shop one day, but pretend not to recognize. He was one of the “kids” working at a brand new Web 2.0 start-up, with great aspirations and ideas on creating new software (read: Probably some Facebook/MySpace app), services (read: Odd niche that hasn’t been filled yet) and products (read: … Nevermind, I’ll address this in the following paragraphs).

Somewhere between his passionate speech about how his company is going to do this and that, and how they have this great plan towards building this huge community and thus deriving value, he actually paid half enough of a mind to ask me about what I did. This is where our generational separation came in play: He was absolutely astounded by the amount of money that has to be spent for our company to create, sell, and continue to support a hardware product. There were many statements that sounded like (but not verbatim, since I wasn’t in the mood to take notes about what a college newborn had to dispense) these:

“What is your CPA? Wow, how much? That’s incredible!”
“Wait, how many years of runway do you have to profitability? Really, it takes that long?”
“Wow, you have to maintain inventory? Like, have it stored in a warehouse somewhere?”
“Why would you do this with so much overhead?”
“See, our company’s product is just a service, it doesn’t need warehouse and there’s no overhead!”
“We’ll build a huge user base, and we’ll do it on a super small budget. Just a few servers, that’s it!”
“Oh, profitability? It’s okay, if we build great software, people will use it, and we’ll build value over time!”

What bothered me, is that despite this kid’s college education & apparent (or supposed) brilliance, there seems to be a distinct lack of history & perspective that’s been passed down from our generation to theirs.

Having been through the first internet bubble, a lot of us lived through the harsh reality of what creating a new market, a new industry is really like. The internet bubble was filled with promises, companies with high evaluation and inflated stock prices, all the meanwhile with no real product or real plan towards profitability. Eventually, stock prices normalize, or even just distintegrate completely. Venture capitalist will all want their investment back at some point. Nearly a decade later, we still haven’t figured out how exactly, that we can all profit from this “internet” thing.

The problem, as I see it, is that most of what drives internet’s true economy, is the same things that drives our old economy. For example, Amazon is hardly turning a profit from quarter to quarter (exactly how many quarters they’ve been profitable, I don’t know, but it’s not an amazing amount), but they’re still a sustainable company because they’re basically a traditional retailer in a different medium. EBay is doing very well, because they are basically an online classified/flea market. They are one of the few company, along with maybe Craigslist, that’s figured out a way to be profitable without having to invest huge stakes or store major inventory.

What it boils down to, is that everything we do on the internet, are still extensions of our traditional economy. Instead of going to the drug store, we might be shopping on drugstore.com. Instead of going down to the travel agent’s office, we simply book our flights & hotels online. However the basic product being offered by various internet-based companies hasn’t deviated all that much from tradition.

The web 2.0 companies introduced new concepts of creating user-driven communities, but has any web 2.0 company truly figured out how to monitize anything they’re doing? The methodology behind evaluating web 2.0 company’s worth is almost as ridiculous as the evaluation people used to give to web 1.0 companies. You count up the number of users you have signed up to your service, you give each user on your service some arbitrarily determined value in dollars of how much the “mindshare” of an user on your service is worth. Multiple arbitrary value to registered user base and daily traffic = your company’s value. Of course, this is an oversimplified version of what the actual calculation would entail, but when you have a company that doesn’t create any “real” products, what else is there to evaluate?

So most web 2.0 company’s “real” profitbility plan usually involves one, or both of the following:

1. Serving ads to the user base (Google loves you).
2. Get bought by some other established media entities (News Corp, AOL, MSN… etc…).

See, we really haven’t progressed much beyond what Yahoo and Excite (anyone remember Excite?) was doing nearly a decade ago. We just gave it a different spin, a different face, and a whole new generation of young, hot-blooded college grads willing to do the bidding of whatever VC is haunting their dreams.

No doubt, that web 2.0 is an important progression in the internet economy, but the problem is just as stagnant now as the original internet revolution itself. There are way too many companies that operate on the principle of:

Step 1: Make some software
Step 2: ?????
Step 3: Profit!!!

What bugs me even more, is that these kids seem to have completely forgotten and dismissed the traditional economy that their life is built on. The web 2.0 kids are treating the internet akin to a new age get-rich-quick scheme of sorts, without considering investing their future into a more realistic market. For example, “the kid” was tauting to me about how his company is running a very low overhead, high margin business as he’s holding no real physical product or inventory; I can’t help but wonder, so who is going to be providing “the kid’s” company with real products?

For example, if Dell was to decide that the PC hardware business is too low margin, too high risk and high overhead; if Dell was to abandone the computer market completely and move into just software & services, then who will “the kid” buy hardware from? It’s great that they’re creating brilliant web 2.0 application and all, but what happens if all PC hardware manufacturers decided to move into software, stop making hardware?

If we were to take this a step further, in a end-of-the-world-o-m-g sorta way (which is the mode that I often operate in anyway… it’s not easy being me), what if people who plants our corn & milks our cow decides that they should in fact, move into virtual products & goods as well, because physical products are just too archaic? Does this sound like Second Life gone bad?

The point is, the traditional market will always have its relevance, but almost all wide-eyed kids who just entered the real world are dismissive towards the “old ways of doing things.” They’re far more excited to be working at a web 2.0 company that makes nothing real at all, rather than building a solid consumer product that’s might take years to grow a new category, and spend millions of dollars in marketing. It’s easy to see the few web 2.0 company that’s been lucky enough to be acquired and seeing the owners walking away filthy rich (often still with their company struggling to find a real profitable plan for the future), and think that is the way of the future, a career path.

Consider this: Go see how much money Proctor & Gamble is making every year by selling you Swiffer refills & laundry detergents. It’s not sexy, but it’s a necessity of life.

Say that about Facebook? I still don’t have a Facebook account.