What's Web 2.0 worth?

Catching up on an interesting week.

Social networking site Bebo sold itself this week to AOL for $850 million. Some see it as a validation of the Web 2.0 market, including Microsoft’s seemingly foolish October investment in Facebook that implied a $15 billion valuation for the latter firm (as compared to the $500 million News Corp. paid for MySpace back in 2005).

From the one presentation that I saw in September, Bebo is a cool company with an aggressive push towards the mobile Web 2.0. However, as far as I can tell, it’s thus far a niche player that doesn’t lead in any national market. Although popular in the UK, it’s a distant fourth in the US after MySpace, Facebook and MyYearbook.

One way to look at this is that AOL is buying a fading star because it can get it cheap. Another is that the owners want to cash out, and the VCs are thrilled to get a 9x return in after 22 months.

The network effects are pretty strong here, so it’s not clear how a #4 property gains market share. Small entrepreneurial companies tend to lose their focus and drive after acquisition by a big company; Exhibit A is the AOL-Netscape merger. In fact, AOL has demonstrated a reverse midas touch over the past decade, squandering the tremendous market share advantage it once had from its walled garden and dominance of dialup service in the US.

On the other hand, Hotmail, MySpace and YouTube have continued to grow since their acquisition. So it’s possible (if not likely) that the AOL acquisition could be good for Bebo.

IMHO Bebo needs to dominate a niche rather than strive to be #2 or #3 in various national markets around the world. The idea of cross-promotion and integration with AIM seems the most plausible, but a lot depends on how much talent (and motivation) remains at Bebo after it gets gobbled up.

Continuing where Netscape failed

Today is apparently the end of the line for Netscape, with the release of the final version (ever): Netscape 9.0.0.6 for Windows, Mac OS X and Linux. As previously announced, AOL is pulling the plug on Netscape support at the end of the month.

The release is mainly a security bug-fix (incorporating Mozilla fixes) on top of the existing Netscape 9 features. It also lists tools for migrating to Mozilla, and something called Flock.

Flock is a social networking browser that is particularly suited for bloggers. It builds on the Mozilla code base but as a separate browser. The software hit 1.0 in November and (now I recall) was being demonstrated during my visit last month to Macworld Expo. The first 1.1 beta was released earlier this week.

However, unlike the open source Mozilla, Flock comes from a for-profit Silicon Valley company co-founded by Bart Decrem, a Mozilla (and Eazel) veteran. Decrem has since left the company and been replaced by an experienced big company manager.

The company has won funding from angels and three VCs (Bessemer, Shasta and Catamount). The only cloud on the horizon that Mozilla has responded with its own social network extensions (subtly named The Coop).

Am I the only who sees an irony here? AOL released Netscape as open source (creating Mozilla) in hopes of helping its browser business, but the effort failed and so it got out of the browser business. Meanwhile, some entrepreneurs come up with an idea for a better browser, but rather than building it from scratch, they leverage the Mozilla code base to create a brand new business.

R.I.P., Netscape

On Friday, AOL announced that it’s pulled the plug on Netscape browser development, and that the browser will be officially unsupported as of Feb. 1. Users are being told to switch to Firefox.

(As a side note, I heard the news during the hourly CBS Radio national news broadcast. How often does a piece of of software make radio news?)

Back in the dot-com era (1999), AOL Time Warner bought Netscape at an inflated price ($9 billion) with its inflated stock as currency. But it was all downhill from there, with layoffs followed by layoffs and plummeting market share. AOL has toyed with reviving Netscape in the past, but Netscape never really recovered from losing the browser wars to Internet Explorer.

Charles Ferguson’s book did a great job chronicling what went wrong inside Netscape, with lousy software engineering and a lack of adult supervision being major contributing factors.

Fortunately, in 1998 AOL released Netscape code as open source (creating Mozilla.org). This marked perhaps the first major corporate-sponsored open source development project. (Sleepycat and MySQL use open source as a distribution strategy but it plays a minor role in the development efforts). In 2003, AOL handed over the keys to Mozilla to an independent foundation, thus assuring the browser a life beyond AOL-Netscape’s failed business model. (To the degree that getting crushed by a free Microsoft browser constitutes failure).

Through the combined efforts of individual open source contributors, charitable/foundation types, and corporate sponsorship (mostly big IT companies like Sun and HP), Mozilla has become a big success, mainly through its flagship Firefox browser. Firefox now has about 15% market share, which is far less Netscape’s near-monopoly, but the only effective competition IE has had in the past 5 years. If the Netscape users switch to Firefox, its share could conceivably pass 30%, which both the Netscape and Mozilla pioneers would consider vindication of the past decade’s efforts.