Technology reporter, BBC News, Silicon Valley
The economic downturn will not sound the death knell for Web 2.0 firms say analysts and experts.
But, they warn, tough times are ahead and to weather the downturn Web 2.0 must grow up focus on real problems.
"You have to conclude, if you look at the focus of a lot of what you call 'Web 2.0', the relentless focus on advertising-based consumer models, lightweight applications, we may be living in somewhat of a bubble, and I'm not talking about an investment bubble," said Tim O'Reilly, who coined the phrase "Web 2.0".
"It's a reality bubble," he said.
Mr O'Reilly, widely regarded as an industry visionary, bemoaned the frivolous applications on Web 2.0 sites that, for instance, let people throw sheep, poke friends or send virtual drinks.
"For me, Web 2.0 is about the internet as platform and its power to harness collective intelligence," Mr O'Reilly told the BBC.
"Areas like the smart power grid, collective action on early disease detection or disaster response, or personalised medicine are all examples of how the principles that drove the consumer internet can be applied in other areas," he said.
It was a message he drove home at the Web 2.0 summit in San Francisco.
Mr O'Reilly told attendees: "If there is a silver lining in the downturn, it's that we're going to clear a lot of the clutter. We're going to remind people of what matters."
Companies that cannot bring value would not survive, he suggested.
Said seasoned venture capitalist John Doerr: "The good ideas will get funded. Most of the profits made in the venture capital business, if not all of them, are made by 5% of those firms.
"They are going to keep funding the good ideas but they won't be on as attractive terms and it's now a buyers' market instead of a sellers' market," said Mr Doerr
"But liquidity? How is it that we get those companies to produce a return for their employees and investors? That is another question. We might not see liquidity for the next three or four years," he said.
For angel investor Ron Conway the Web 2.0 world has a lot of life left in it.
"I don't think the hammer is going to come down on all these Web 2.0 companies," he said. "I think companies in the video space, in cloud computing, in social networking and what we call social communities will all continue to thrive.
"I see innovation continuing to happen and the mobile market playing an important role. It is still in its infancy and will see massive growth."
For those at the consumer end of Web 2.0 the upside of the downturn is its potential for injecting some rigour into the business.
"What we have seen in the last three or four months is that funding has pretty much dried up for internet Web 2.0 companies," said Chris de Wolfe, co-founder of MySpace.
"Thus you have seen VC companies come out and tell their companies that they are not going to get any more money," he said. "Consequently many of the valuations for those companies have also gone way down."
But, said Mr de Wolfe that could be a good thing.
"I see a lot of consolidation over the next couple of years. Those companies that don't make sense in this space will go out of business or get acquired by larger companies if they are lucky," he said.
Analysts watching this sector view it with optimism mixed with a heavy dose of reality.
"The good news is there is a huge amount of growth in social networking, online video, voice over IP," said Mary Meeker of Morgan Stanley. The bad news is they carry much lower cpm's (cost per thousand impressions) for advertising."
She said the websites exciting her were those dominating the Web 2.0 consciousness.
She cited YouTube's 52% year-to-year growth and 329 million unique visitors; Facebook's 119% year-to-year growth giving it an audience of 161 million people and Skype's 370 million users representing growth of 51%.
"A better place"
But, said Mr O'Reilly, the focus on costs should not divert founders from attacking big issues.
"The next great companies don't come from jumping on the bandwagon," he said. "They come from finding something really meaty and tough and hard and putting your best minds to work on it and making the world a better place as a result.
"I think we have that opportunity brought home to us by this downturn," he said.
Lending weight to this view was former US Vice President Al Gore - now an environmental activist and Apple board member.
At the Web 2.0 conference he issued a plea for Web 2.0 to get serious.
He said: "The purpose I would urge all of you - as many are as willing to take it up - is to bring about a higher level of consciousness about our planet and the intermittent danger and opportunity we face because of the radical transformation in the relationship between human beings and the earth."
Entrepreneurs should not be leery of taking the high ground, said Mr O'Reilly.
"Back when Google first came on the scene everyone dismissed search as 'Yeah, not much of a business there'. And these guys said no we are going to organise all the world's information.
"Then there was Microsoft wanting to put a computer on everyone's desktop. The titans of industry said 'No, the PC is just a toy'. So I feel we are at one of those inflection points where there are enormous problems to be solved and enormous opportunities."
6 months ago