Here’s my impression of a web 2.0 company making a pitch to a venture capital firm from between 2006-2008: I’ve got this really great idea to build this service that everyone will love, no one will be able to live without, people will tell all their friends about, and users will add their own content.  Once it gets going, we can just sit back and profit!!!

In case that was way too complicated for you to understand, here’s my web 2.0 business plan in three easy phases:

This was pretty much the plan for everyone from Digg to FriendFeed, Twitter to Facebook.  And despite the obvious flaw of not really having a phase two, these companies still exist and are still fully operational.  Granted, several web 2.0 companies have entered the deadpool (Pownce, for example), but a lot of the ones you might have thought would be dead and out of money by now are still up and running, which is pretty darned amazing considering that they lack any publicly known business plans.

Twitter is already trying to figure out exactly what their business plan is, and in fact they’ve recently hired someone to help them figure out how they’ll make money – Twitter recently hired Kevin Thau who hails from past ventures Buzzwire and Openwave.  It’s hard to imagine what Twitter might do even just to cover what are likely to be increasingly expensive costs to run and maintain their infrastructure.

But that doesn’t explain one small, minor detail that I still can’t figure out: how is it that these companies got any VC funding without presenting any real business plans?  And furthermore, why is it that companies like Yammer, Present.ly and even IBM are taking concepts directly from Twitter and already making real money on them before Twitter ever even turns over a single dime?  I’m not criticizing these companies for creating similar functional offerings – to the contrary, the fact that they seem to have a good business a plan speaks highly of their possible futures.

Upon reflection, I think it’s probably wrong of me to include Facebook in the list of web 2.0 startups that don’t really have a solid business plan.  I do believe they had always intended to advertise to their users, and that they could do this more effectively by selling ad space on profiles that matched demographics that their marketers are after.  I had also written last month that I do believe they have enough momentum going to find a steady revenue stream before going under.

But that doesn’t explain what Twitter, Digg or FriendFeed or similar services will do if the costs of running their infrastructure outpace their funding.  They’re all great tools to share and discover content (and generate endless memes), but if push came to shove I think I could probably give up most of them and rely on Facebook to provide the same or similar functionality.

That’s enough for now.  I’d better get back to enjoying my favorite web 2.0 sites while they last.

Filed under: Consumer Web, IBM, Product Management, Social Computing, Social Networking