Web 2.0 is about to go bust. The way that the markets have self-built is an exact copy of the way that the original dot-com build up happened, but with an additional patina of socialness. It is an inevitable part of markets that this will happen. People are already over-extended. The user is saturated with new web applications. The latest startups are getting overly niche specific. And the many first time stumblers upon any website are saying, "Who cares?"
And that is the point, no one. Marketing has pushed the hype beyond its limits, and the buzz words are already tired again. We are around the same block and back at the beginning again. Its a shame, but the party had to end some time. I hate to break it to you, but Web 2.0 is about to go bust.
The problem is that businesses can not help but operate the way they do and instead of investing in the long term they are bound by the rules of the game, which are to invest in the next quarter and pray for the best. At this point the Internet simply moves faster than the market and the level of denial that companies have is higher than a myopic senior at a slot machine in Atlantic City. When your career is on the line and venture capital is available, you take what you can get.
Just look at the latest GigaOm? Web 2.0 hyped product, WeBot? (of course it is beta). It is yet another typical web app that performs yet another totally redundant function. They even resort to using profanity on their home page to try to shock people into thinking, "Wow, this must really be cutting edge." A desperate attempt at hype.
And that is the only thing that can make any individual temporarily apex above the swarm, hype. Yet this hype is self defeating — it shows the chink in the armor of the Web 2.0 fad. Companies are competing each other into the ground.
The Internet does not have the same safeguards against a total spin out that a market based on physical goods and services has. The Internet will collectively outrun any individual "product" because of the fundamental disconnect between a communications network and a market. Trying to make a communications network into a market will fail again and again, because selling and buying information as if it were a physical good ignores the fact that there is no actual scarcity of any particular data. There is only inacessability. All data can be copied indefinitely without any degradation, the only way to create scarcity (and hence value) is to restrict access in some clever way.
Further reducing the idea of data to the idea of "interest" or "mindshare" to be bought and sold will yield the same results. Imposing artificial scarcity by means of locking down information using crippled technology will also yield the same results.
The crucial downfall of web 2.0 (and 3.0, and 4.0) has already been sealed. Many business models are based on capturing user data and keeping it locked up in the CMS somehow. Has AOL taught us nothing? This can not work. Flickr, YouTube, del.icio.us, twitter, etc all are based on the same idea. Get users to go to your site, create content, then continue to use their site because of the initial time investment, and the fact that your friends and family are also invested. Can you export your photos from Flickr? How much does it cost? What about your friend network?
When the initial glow wears off people realize they are doing something that their computer could already do, but they have to go through a middle man to do it. This explains the extremely short shelf life of social networking sites. Remember Friendster? How played out is MySpace? already? How many years old is it?
After a few rounds people realize they have been duped. Social networking (yes, even Second Life) goes the way of the chat room and marketers will have to continue the arms race of engaging an increasingly bored public by selling them ever more inane bits of proprietary code to keep them dazed enough to be open to the next salvo. Each new cycle of this arms race will end the same way the first one did, with another dot-com bust.
"Don't say that, shareholder and consumer confidence is the only thing keeping my business model afloat!"
Boom, bust, boom, bust.
Any real attempt to intervene in this endless cycle requires that the people building the sites and the people using the sites share a common and mutually beneficial interest.
The Open Source and Free Software community has already taken this oath to protect the freedoms of users and programmers alike. There is still money to be made, but is is not the wild west. It is a sustainable model of computer software development (and web apps) that takes into consideration the totality of its effects on society, not just profit margins.
Code is created collaboratively and in a way that is responsive to the community of users. Services are provided to average users by communal forums, those who need custom work done can hire a programmer or a company to develop new software, with the caveat that anything developed from existing works must be made available to the community that collectively created those works.
Instead of screwing over users who will then have to be won over again by a different, re-branded service that does the same thing, with a different API, users are listened to and the software can develop incrementally, serving both the developer and the user community and keeping out the middle man."
There are a few non-sequitors in this essay, but I think my main disagreement with your reasoning is that you are discounting time as the scarce resource. People are subscribing to web applications because these applications save them time. Life is short, after all. Time is the scarcest of all commodities, since you can't mine any more of it. Moving applications to your own computer is usually a real waste of time, since you'll lose the ability to interact with other people whose net contributions will AddValue?, or because maintenance of the application is just too much of a pain in the neck.
Not to mention other dimensions exist of why someone would pay for a web application, such as risk reduction (e.g. automatic redundant backups like we do at http://www.freshbooks.com), socialness (http://www.youtube.com), or being enabled to do something you couldn't do easily beforehand (e.g. http://www.mux.am) -- SunirShah
Until now making profit on the Web appeared to be a top-down approach, abusing idealistic contributors, who worked for free, to create markets. Web 2.0 has brought enough awareness to the honestly working/ collaborating peers to recognize their capabilities to CreateAndShareWealth, I hope. -- FridemarPache