Is Web 2.0 Nuts? Or Just Like Hollywood?

Scenario: If you can find time away from other work — and if you can afford the meager development costs — then you have time to pursue your creative vision, with hopes of wild riches and fortune.

Question: are we talking web startups or garage bands?

With each passing day, Web 2.0 looks less like a traditional industry, in which services or widgets (the old kind) are sold for profit. Rather, it resembles something vaguely like Hollywood:

— This industry features vast numbers of candidate projects, produced at a grass-roots level and almost always initially financed by the creators themselves. Are we talking about indie films shot on video — or the latest Facebook App?

— This industry is characterised by fierce competition for recognition, in which middlemen select — from myriad prototypes — a small number of candidates for funding and promotion. Are we talking about A&R Reps and television producers — or angels and VCs?

— In this industry, ideas are easily stolen or imitated, so easily that often we see three or four similarly themed projects in the pipeline at once. Are we talking about this year’s smackdown between “Cashmere Mafia” and “Lipstick Jungle” — or Twitter and Pownce?

The conclusion: if you’re curious about the future of Web 2.0, you might want to ring up your out-of-work actor friends and get a crash course in Entertainment Industry 101. Once every college had its own slate of campus bands, chasing the dream. Soon each one will have a handful of web startups as well.

Some lessons we can learn from the comparison:

1) Newcomers will arrive in droves — and will have high motivation to make heavy sacrifices. Actors wait tables. Musicians barely eat. Writers flat-out starve. Granted, these people usually desire fame, and web entrepreneurs a successful exit. But both groups share a common goal to motivate them through hard times: they all want to follow their own creative vision, a rewarding job benefit in itself.

2) Grass-roots resources count. If you’re a young writer wealthy enough to spend your days working on your laptop, then you stand a better chance of making it — better than a hack newspaperman trying to support his kids. But while self-financing can keep you in the game, talent nevertheless has a way of winning out. If the music is good, a solo songwriter will build a following, as long as he keeps at it. Similarly if an application does something truly worthwhile — like the brilliant Takes All Types — then people will take note.

3) Marketing and industry connections are key. In media, there are plenty of talented and qualified people who could get that secondary speaking role on that new ABC drama. Plenty would do a great job. But the role can only go to one — and having well-placed connections, building a name in the industry, and marketing oneself wisely will often make the difference. Celebrity mentorship will also be a powerful tool. Just as Quentin Tarrantino cultivates young filmmakers, high-profile media figures like Steven Spielberg or Peter Gabriel can invest in companies like Rising and TheFilter.

4) Middlemen will be paralysed by an abundance of choice. If you’ve watched your “Entourage,” you know that most often in entertainment well-placed individuals — going on no more than gut instinct — push through products they believe will work. Similarly, early-stage investors and VCs (for all of their love of metrics) will often make purely instinctual choices on whom to fund, and whom to leave behind. In both examples, guy instinct yields failure rates often approaching 90 per cent — pointing to significant opportunities for new analytical tools to predict hits, whether they’re web apps or screenplays.

5) And those dismal failure rates will only climb. In entertainment, most aspiring musicians, film directors, actors, and writers don’t come close to the big time. Once they do, it’s a bleak ride. Less than 10 per cent of records, films, TV shows, and books will generate 90 per cent or more of revenue. Will it happen in Web 2.0? As outsourcing continues to lower labour costs, and as tools like Google Docs lower enterprise costs, we can expect even more new companies to flood an already crowded market. The vast majority will never get funded. The vast majority of the funded will fail.

So the consumer web is evolving into a hit-driven business. As in any other hit-driven business, many stars will have to align for success, beyond one’s inherent talent — from timing your idea at the right moment, to meeting the right people along the way, to delivering a product to the public at the moment they want it. In the coming years, Tinseltown and Silicon Valley will have far more in common than one might have ever imagined.

Brent Stinski is the CEO of Media Predict, which uses prediction markets to generate market research for media and entertainment companies.

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