In recent weeks I’ve received emails from Xmarks and 12seconds.tv announcing that both were ceasing operations by the end of the month. I was bummed. With Xmarks, I actually used it every day to keep all my bookmarks synced across multiple machines. With 12seconds.tv, I had used a dozen times or so and I could see an application or a place for it in the crowded world of social applications and services. So why did they both decide to shut the doors?
No revenues. Simple as that. They could not make any money. Both companies had traffic and users, and both applications were free, but the problem was, they could not figure out how to make a living off of a social utility. I’ve said for a long time that I can’t stand the traditional internet business model that’s predicated on traffic. I hate that model; and yet as we speak in 2010, we have 2 companies that needed traffic to grab advertisers, and to a certain degree had half of that equation, and yet still couldn’t survive.
What does that mean?
Sure we’ve had a ton of companies that have gone belly up, but what does it mean today? Back in the day, when your internet startup wasn’t tied to a transactional product, your best bet for survival was predicated on a mix of lots of traffic, word of mouth, and great service which attracted advertisers. But that still was no guarantee of survival. Especially when it basically was relying on traffic fueled ad dollars.
This morning Jay Baer wrote a post about how social media behemoth Facebook was basically suffocating the rest of the web 2.0 world. Frankly I have to agree with him. Not only is Facebook swallowing up our time, but it’s redefining our choices and driving our preferences-which means that companies that are trying to go it alone in the social media landscape, now have to compete for attention and eyeballs of people that prefer to play inside the walls of Facebook only!
Forget ad revenue from traffic as a major concern for new social startups. They now have to compete with Facebook right out of the blocks. It reminds me of the halcyon days of first Microsoft’s dominance and then Google’s. Everyone was always wondering what they were going to do next. This is Facebook’s world and we’re just living in it.
That’s what that means.
Direct Marketing Observations 
Thinking that xmarks is a bit of a special case. I have no idea what their burn rate was, but given the utility and large user base, I would think that a contributing factor in their downfall was not having a strategy to generate revenue streams from the application.
Most users I know would have paid – even an annual subscription – for the value xmarks provided. Per haps it was not enough, but would think that selling at some price would be an option as opposed to shutting down.
In the case of xmarks, the challenge is creating a viable business model with aligned management and investor goals.
It mostly proves that great cloud services can’t exist if they have no plan to drive a revenue stream.
Don’t blame the cloud, blame the company.
@Robert, great online ideas are just great ideas unless you can make some money with them..at least in our world right?
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