Web Services Not Web Sites: Monetization Just Got Harder

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“The Future is Web Services, Not Web Sites,” says Steve Rubel.  Rubel’s point is that every site can’t be a destination.  Aggregation will happen because the Attention Crash will force it ot happen.  The way to survival is therefore not creating sites, but creating web services so that whichever destination your “eyeballs”, excuse me “customers”, move to, they can still get your content via an API.  Fred Wilson says, “You cannot be a destination exclusively on the Internet anymore. If you are not a open web service, you won’t get nearly as far these days.”  He’s goes on to cite Twitter and its api as proof that the strategy works because now Twitter is everywhere.  Google and Facebook are vying to see who can set the standard for how these api’s should work.  MySpace is just rolling out their Open Social support.  YouTube is suddenly offering to be something of a white label video service.

These days, you can’t just be a web site, and you’re likely not successful enough to be a platform, so you neeed to make sure you can be a service on someone else’s platform or destination web site.  Yahoo has opened up search, want to be a service on their platform/destination?  Heck, Will Fastie just quit his job as powerful Hummer Winblad VC to go be CEO of a widget company: clearly he believes and voted with his feet.  Widgets are neither fish nor foul in my mind.  They’re sort of like being a destination because you moved in and squatted on someone else’s destination.  Oops, there goes the neighborhood!  Amazon gets it and has rolled out Facebook widgets so your friends can buy you the books you want without ever leaving Facebook.

Is this really what the future holds?  Is it healthy, sustainable, vibrant, and most importantly for the continued deal flow, is it lucrative?  Michael Arrington brings us a bit of counterpoint.  He wonders why people will want to access things they mostly can and should access elsewhere in FriendFeed?  Why go to FriendFeed to Twitter instead of Twitter itself?  The vast majority of what’s being read in FriendFeed is Twitter, Blogs, and Google Reader (more blogs?).

I agree with Arrington.  I don’t think folks have thought through very well what this all means strategically and financially.  There is a great deal of risk lurking out there.  This is one of those times when there is a race of gripping one hand above the other on the baseball bat and eventually there will be no room left to grip.  Conventional wisdom likes to ask whether a new startup idea is a feature, a product, or a business.  If players are not real careful, becoming a web service is making the strategic decision to become a feature on someone else’s product.

And what about the aggregators?  Why let someone new like FriendFeed even get a foothold?  Let’s take the grungiest, oldest, most out of date aggregator on the planet, and ask what we’d do if we were driving the bus.  I’m referring to Microsoft Outlook, of course.  It can sort of do RSS feeds already.  I would do a total facelift on the thing and kick it up a notch.  Make Outlook the be all and end all aggregator.  Make it do Twitter, blogs, and every other conceivable thing.  And while we’re at it, let’s make it do these things well.  Let’s Silverlight enable it.  Wouldn’t that be a kick in the head from Microsoft?  Isn’t just the thought of it a cautionary tale for how this can wind up?  As everyone becomes a service, we lower the friction.  As so often happens, and as is so counterintuitive, lowering friction here will reduce diversity of aggregators.  There’s just not enough differentiation to sustain a lot of players, so the Microsofts and Googles can win.  Maybe this is the value of Yahoo to Microsoft.  It can be the destination site for everyone else whom Microsoft can regard merely as a web service.

How the heck do you monetize these web services in a world like that?  You’ve ceded the value of being the destination.  You have customers, but only by virtue of your destination partners.  What are you really?  You’re the OEM software that gets bundled with the PC.  Anyone who has ever been involved in one of those deals knows it’s a sorry business.  There’s no money in it.  You become the flavor du jour:  here on today’s PC, replaced by something fresher on tomorrow’s PC.  You are absolutely not in control of your destiny and you wander the world hat in hand.

Rubel is right.  Every site can’t be a destination.  It is probably better to take sloppy seconds than not to exist at all.  But have no illusions about building a huge business around this stuff.  I think it will be very hard.  Will Fastie may in fact be in a good place.  He, at least, is selling blue jeans and pans to the gold miners rather than heading out on the Yukon trail himself.  Trust a wily VC to see the silver lining in the dark cloud!

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