Traction vs Value

Giff Constable social media, startups, virtual goods

spiralDavid Pakman has an excellent post up called “Confusing Traction with Value“, pointing to the “distressed exit of iLike” and then pointing out a few Web 2.0 aberrations in valuation.  For those of you who experienced Web 1.0’s up and down, this is a bit “been there, done that”.

Web 1.0 was about startups far outstripping the available audience.

Web 2.0 was about startups finding audience, but far outstripping the available monetization sources (i.e. advertising, subscribers and virtual goods).

Advertising will continue to grow and mature online, but I remain fan of freemium and virtual goods as business models.  Of course, to have the latter, you have to have a product that fits and design in the right kinds of compulsion loops — virtual goods are not something you can just slap on top and expect to make money (although no doubt in the wake of the advertising drought, a new wave of business plans are doing exactly that).

Speaking of virtual goods, congrats to Mitch and Andrew over at Live Gamer on the acquisition of Two Fish — I’ve been expecting consolidation in that space and I think Live Gamer is creating a force to be reckoned with.