Consumer internet – the changing nature of the game – part II

Man carrying dollar sign 

This is a follow to my first post on this subject last week.

In that post I predicted that building web2.0 companies will start to become a more expensive business – driven by increased marketing and development spend. 

In this follow up post I will look at what that might mean for the way companies are built and how VCs think about investing in this space.

It might be tough to follow this post if you haven’t read the first one. 

If companies are spending more on marketing then it becomes more important that the product is right when the campaign dollars start flowing.  There will always be a trade off between waiting for the perfect product and wanting to get to market early, but when you are spending more on marketing the balance shifts more towards wanting to get the product right.  You are less likely to waste your advertising dollars that way, and there is always the feeling that your first shot is your best chance.

Getting it right probably means having high quality product design people on your team.  At the moment the dominant approach is ‘experiment and iterate’ – but if you need to open the cheque book before you can get traffic you will want someone who can get it right without iterating.

Another change is that distribution deals will become more important.  For example getting bundled Firefox could make a company.  Spending time and money on business development execs is an alternative to Adwords campaigns or offline PR.

For VCs things will change as well.  At the moment the general view is that consumer internet start-ups should be able to launch and get some good traffic before they need the sort of money we provide.  That has given us the luxury of being able to let consumers pass judgement on whether a product is great or not before we write a cheque (but it has also allowed many start-ups to get by without raising money from us at all).

If money is required before meaningful traffic can be generated we will have to find new ways of picking the best from the rest.  That will mean looking in more detail at the product and market.  We will also take confidence from having people on the team who have been there and done it before in this space – second time entrepreneurs, if you will.  The good news is that there are more and more of you out there.

All of which makes the financing and building of consumer internet businesses start to sound more like the building and financing of traditional software businesses.

That is the direction in which the world is moving, I’m sure of it.  The fact that it gets cheaper every day to launch a service will only increase the number of companies and make it more difficult to get heard above the noise.