Web 2.0’s Moment of Reckoning.

Since about 2004, the whole Web 2.0 phenomenon of social media, social networks, user-generated content, and the convergence of each with mobile has been the talk of the town. With the exception of Apple and Google, Web 1.0 innovators were left in the public relations dust by a group of start-ups that changed the world. 

These include, of course, Facebook, Twitter, LinkedIn and Zynga.

All four of these Web 2.0 mavericks have been judged wildly successful when you look at their membership and usage numbers. By every measure, they’re impressive, save one: can they make money?  Since three of these four companies are now public, we’ve begun to get some answers on this last measure, and the picture is mixed.

Last week both Facebook and Zynga reported their earnings for the quarter and indicated that enthusiasm for their services is beginning to fall off. Moreover, Zynga missed its numbers in a pretty spectacular fashion.  As a result, Facebook’s stock is trading down about 40% from its post-IPO high and Zynga’s stock is just in the toilet, trading at under $3 as of this writing.

While both are making money, they’re simply not performing up to investors’ expectations. And while many believe Zynga is well positioned to take advantage of social gaming on mobile platforms, it’s inability to execute well on new game introductions and integrating recent acquisitions like Draw Something have shaken investor confidence.

Facebook, on the other hand, already has an advertising problem, which is made worse by the mobile revolution. While people spend a lot of time on Facebook, they very rarely click on ads and their other behaviors are proving difficult to monetize. And since serving ads on mobile platforms has so far proven very difficult and generally ineffective, investors have little confidence that the company can overcome these fundamental challenges.

While Twitter is still private, it was caught up in some well-sourced speculation last week that Apple may be considering a game-changing investment in the company. Apple’s lame foray into social networking – called Ping, which is integrated with activity in iTunes – is pretty much a flop and it’s the one area in which Apple has shown it just doesn’t excel.  A solid integration with Twitter might change that.

Still, Twitter’s own monetization strategies have not been lighting the world on fire and were it not for a whole bunch of venture capital and other strategic investments, they might not have been long for this earth. Because of those investments and some recent advertising revenue, Twitter is already sitting on a hoard of cash.  Another injection of capital by Apple would definitely give Twitter a lot more runway, but to what end, exactly? It might be that Twitter is a (really awesome, very cool) feature, not an actual company, and would be best integrated into a hardware / software / entertainment ecosystem like Apple’s.

The lone standout in this vanguard of Web 2.0 companies is LinkedIn, which has been doing fabulously well since its IPO. While LinkedIn gets a small percentage of its revenue from advertising and by charging users for premium features, what it really does best is monetize all the data it sits on.

People who recruit talent for a living rely almost exclusively on LinkedIn to source professionals who are the right matches to available job opportunities. This is made possible by mining all the resume information and recommendations that users set up in their profiles – data, all of it.

According to Forbes, LinkedIn is far more efficient at generating revenue than is Facebook.  Though LinkedIn users spend far less time on the site than do Facebook users, LinkedIn is collecting $1.30 for every visitor hour while Facebook is collecting 6.2 cents. And because LinkedIn monetizes the data it collects so efficiently, it is in a much better position to benefit from the mobile revolution, where its users are sure to generate even more data to mine. 

There is no doubt that these Web 2.0 companies have changed the world. They’ve managed to disrupt whole industries and rewrite the rules of communication and how business gets done.  So far, monetizing the old-fashion way – through advertising dollars – just isn’t cutting it.

The money, it seems, is in the data.

Author DEREK GORDON is a marketing and sales exec with more than 20 years success in integrated marketing and sales strategy and management. He is the Chief Marketing and Sales Officer for Pathbrite. You can also check out his blog, Daily Casserole.

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