In the Web 1.0 We Advertised With Them, In The Web 2.0 They Advertise With Us

Gspace, a company I own, is a good illustration of the main difference between the Web 1.0 and the Web 2.0 is. And no, it’s not user generated content. In the Web 1.0, we used to advertise with old media to let our sites be known, while in the Web 2.0 not only do we NOT advertise but we successfully compete with old media.

I use Gspace as an example because it is the company with the highest reach to employee ratio that I have ever been involved with. Gspace, an application that sends files normally stored in your PC to be stored in the internet in the form of Gmail, is growing at a rate of 5000 new downloads per day. Gspace is also very useful due to two unique features of its application: one it grows without any advertising (blogosphere and word of mouth work very well); and two, it was built by one part time employee and now it is being improved by another part time employee. These two part time employees are the only two Gspace ever had. Think of this, a community that is adding around 100K new users per month into a platform that can be used for advertising that has never had a full time employee. That is the Web 2.0. And there are many stories like these: Flickr, Delicious, are two hugely popular apps and companies built by very few employees.

In contrast, I remember when I started Ya.com in 2000 with my partners at Jazztel, and we invested 38 milion euros, hiring hundreds of employees and spending most of our money on radio, TV, magazines and newspapers to grow our viewership. And yes, Ya.com was a huge success, became the second largest Spanish portal and we sold it to T Online of Germany for 550 million euros, But the main difference with the Web 1.0 and the Web 2.0 is that in 2000, if you did not advertise you were a nobody, but now if you advertise…you are a nobody.

Have you ever seen a Google commercial? Google is so successful because its products have this “field of dreams” quality to them that are self explanatory and require no advertising. In contrast, Google is the largest recipient of ad money in the world. That is to me the biggest difference between the first generation of internet companies and the second one. It is not user generated content but it is the way Web 2.0 companies grow that is different. Indeed the first internet boom became an old media dream as all the new media companies spent their enormous but quickly disappearing piles of cash with old media. But now things have changed and the Web 2.0 is becoming an old media nightmare. Not only has old media not found a way to keep the ownership of its content as RSS and competitors like Netvibes are thriving (I am an investor in Netvibes), but also poor content protection has made the internet a free-for-all devaluing most old media properties.

Here’s another example from Spain. How can Expansion, Spain´s leading financial newspaper compete with Meneame(I am a partner in Meneame)? As you can see, Expansion was beaten by the 2 person company Meneame in terms of viewership as a news site. This is in spite of the fact that Expansion has hundreds of employees creating original content, and Meneame has… Ricardo and Benyami.

Lastly, I would like to mention how the same is true in the world of old telecom as represented by the 3GSM operators, for example, and the world of new telecoms as represented by Skype and Fon. Skype was not the first VOIP app but it is the one that transformed the world of international long distance calling. It is estimated that over 5% of the world´s international calling minutes now go through Skype and it is growing and growing. And while Skype was not built with 2 employees, it was built with less than 300, and what Skype has achieved is huge. Skype was built without advertising and based on the premise that if you get your friends to join Skype you can talk to them for free. Now Skype is proving to be the first company that got people into video calling, something that 3GSM operators miserably fail to achieve with 3G video calls that went the way of MMS. Skype are investors in FON, the company I founded. FON is the largest WiFi network in the world. FON was also been built investing a tiny amount of money in telecom terms (less than 15 million euros) and with less than 100 people over one year, and it is by far the largest WiFi network in the world growing the size of a T Mobile WiFi per month. Skype is a telephone company built by the people who took telecoms into their own hands and turned telecoms into a real community. FON is a wireless connectivity company built by the people who tired of the dissapointment of 3G and the hundreds of billions wasted by wireless telco giants in 3G decided to build their own company operating in an open frequency, WiFi. As a result FON grows globally without any advertising. As opposed to FON, for example, Orange in the UK spends 25% of its revenues in marketing expenses to end the year with as many customers as it started. 3GSM operators have huge margins but they squander them in advertising. The web 1.0 was a lot of expenditure with little results. The web 2.0 is the opposite. Tiny expenditures and frequently huge results.