Is Web 2.0 sucking the innovation well dry?

Matt Bowman · February 11, 2010 · Short URL:

Entrepreneur-turned professor says companies like Facebook hamper much-needed cleantech funding

 There’s no doubt that Facebook and Twitter have distracted the collective workforce for countless hours on the job—those of us in media get to write that time off as real work (ha!)—but are those companies also distracting investors, sucking hundreds of millions of dollars away from more important innovations in sectors like healthcare, energy efficiency, and education?

Many economists would dismiss such armchair populism with a nod to market efficiency, but not Jon Fisher.

Yesterday, Internet Evolution noted that the entrepreneur-turned professor has made some impressive predictions—in May of 2008 with unemployment at 5.4% he said it would hit 9% within 12 months. In April of ’09 it was at 8.9%. He rebuffed Warren Buffet’s dire predictions in August of last year and nailed the peak and turnaround figures in unemployment as well.

Fisher’s team at the University of San Francisco has proven its mettle in macro-economics, and he's a tried and true Silicon Valley entrepreneur, which is why, when he says Web 2.0 is a big problem, people perk up.

Fisher's an outspoken critic of Facebook and Twitter, which he thinks use too much funding to get to profitability. Given the limited—and waning—amount of venture funding in the global Silicon valley, the time to profitability of Web 2.0 companies is hurting the chances of cleantech companies to get funded.

In August of 2009 at the Commonwealth Club of San Francisco, he put it starkly: “I think these Web 2.0 guys are poised to suck the oxygen out of the liquidity markets and hurt the cleantech guys…. We must have a Tesla, we must have these battery companies, we must have desalination companies…. I think it’s a zero-sum game as far as the money available to companies these days. So I would like for the Web 2.0 guys to sell their companies successfully and I think they missed their window.”

Facebook's unique move of inviting Russian Investment firm DST to buy $100 million of the company's common stock indicates that the lack of liquidity was a problem even for employees. The growth of secondary markets for venture-backed private company stock--especially Facebook's--is another indication that Web 2.0 is hoarding all the available cash, to the point that private exchanges are popping up to solve the problem. It's not hard to believe that the ballooning amount of capital tied up in Web 2.0 is leaving precious little for other critical innovations.

The, er, good news is that Fisher anticipates a big correction in Web 2.0, and thinks that Google Buzz, Gmail’s new Facebook-like functionality, could catalyze a much-needed implosion.

“I think Facebook and Twitter and others are going to experience significant user attrition (seeing it already) because the real horses are in now and there is no defensible technology at work in any of these applications and I think there’s a giant social networking correction coming soon that is good for the planet.”

Fisher’s impressive model for predicting unemployment doesn’t mean he’s right about everything, but given the severe decrease in venture funding available—it’s widely accepted that the venture capital industry is shrinking to half the size it was in 2007—the zero-sum argument is getting harder to refute.

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Twitter is an online information network that allows anyone with an account to post 140 character messages, called tweets. It is free to sign up. Users then follow other accounts which they are interested in, and view the tweets of everyone they follow in their "timeline." Most Twitter accounts are public, where one does not need to approve a request to follow, or need to follow back. This makes Twitter a powerful "one to many" broadcast platform where individuals, companies or organizations can reach millions of followers with a single message. Twitter is accessible from, our mobile website, SMS, our mobile apps for iPhone, Android, Blackberry, our iPad application, or 3rd party clients built by outside developers using our API. Twitter accounts can also be private, where the owner must approve follower requests. 

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Twitter started as an internal project within the podcasting company Odeo. Jack Dorsey, and engineer, had long been interested in status updates. Jack developed the idea, along with Biz Stone, and the first prototype was built in two weeks in March 2006 and launched publicly in August of 2006. The service grew popular very quickly and it soon made sense for Twitter to move outside of Odea. In May 2007, Twitter Inc was founded.

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