If you aren’t working in media, or spending all your free time surfing TechCrunch, chances are that you didn’t notice when the world went from web 1.0 to web 2.0. After all, consumers are still using an Internet browser to access web pages, web pages look the same, and they still take the same time to load (and sometimes longer). What you may have noticed is that almost every site features some social media components – a facebook connect feature, widgets that incorporate sentiment, tools that harness user generated content. You also spend a lot more time on social media sites now than you did in 2004. Thanks to web 2.0 we also live in a world where everyone is a publisher, including yours truly, and news travels in real time. This change happened very quickly and the behavior shift in retrospect doesn’t seem revolutionary.
I believe the next stage of web is going to be a bigger transition, and a much more noticeable one in terms of the impact on our day-to-day lives. At the Consumer Electronics Show earlier this month every hardware company featured at least one web-enabled device. A common feature of all of these devices is that they now come with built-in “app stores”. Depending on the device you can get applications ranging from subscription products like Netflix, to news sites like the NY Times, to enterprise software like salesforce.com. In the next few years your refrigerator will be bundled with software applications, accessible via a touchscreen, that tell you recipes and guidelines for preparing food. If you go to Best Buy in April you will see that the cutting edge television sets contain a window into the Internet – get Youtube clips and weather channel without having to pick up a PC. Sure, you will still use a PC with a keyboard and mouse to surf the old-fashioned web, but increasingly you will rely on applications. This future is coming to your home, and once it is there you will use your computer less and pupose-built applications more. This is the beginning of Web 3.0. It also opens us up to all sorts of philisophical questions: if my car has 12 microprocessors and allows me to stream movies and music, is it still a car, or is it a computer with 4 wheels and a gas tank?
As an investor, Web 3.0 presents both a challenge and an opportunity. The challenge is that content creators are inexorably getting further and further away from controlling how their product is consumed. In the old days a newspaper company wrote the news, printed it on the type of paper they wanted in the format they wanted, delivered the paper to your doorstep, and they implicitly told you the order in which to read stories by presenting pages and sections. This control has broken down online – google allows users to intercept content in a random order, RSS feeds and news readers have aggregated content sources into a single template, the design is now stripped away completely from the original news source, and in web 2.0 an author’s personal brand now supercedes the news outlet that features them. This is a major threat to media – if you give up the way your product is delivered and consumed you will inevitably lose control of the way it is monetized.
However, for the VC community there is an opportunity in this chaos. In the last 12 months we have seen hundreds of new applications, purpose-built for iOS and Android, that are taking advantage of the way consumers use mobile devices. There are new subscription opportunities to bundle content and deliver it across formats. Now that I own a Kindle I am anxiously waiting for someone to launch a Netflix for books. I probably won’t read more but I am sure I would spend more.
There is one more opportunity that I am intently focused on right now. It is very hard to build applications that work everywhere, and in order to do web 3.0 you need a dedicated team with expertise in the underlying platforms. There is no way for every company in America to have in-house expertise on the SDKs (software development kit) for iphone, ipad, android, Sony TV, PS3, XBOX 360, etc etc etc. As Conde Nast is figuring out, it is expensive to support and manage just one of these platforms, let alone all of them. One major opportunity, which I am actively looking for, is the company that will be the management layer for the application Internet. I am sure there are a hundred complexities in this business model – how do you get content to the app, how do you make templatized design that is still appealing to consumers, how much will people pay for this service. But I am pretty sure that the company that figures this out will be very successful.