Web 2.0: Underpants Gnomes Business Models

April 10th, 2006

As this whole Web 2.0 thing has been occurring, I keep on telling myself that everyone is much smarter this time around opposed to the dot-com bubble of the late 90s.

Why?  Well, most of us lived through it and saw what happened to companies with poor business models during the bubble, and it seems like a lot of the new web companies out there are spending less money, technology is cheap or free, and they are doing it with fewer employees.

However, I still see way too many companies that are using the “Underpants Gnomes Business Model”.  Here’s the audio file if you missed the South Park episode that’s from, but basically it’s the following business model:

1. Collect underpants.


2. ????????


3. Profit!

It’s become way too clear now that a lot of new web companies are following this business model, and the majority of them will probably fail at some point.  For example:

1. Mashup videos


2. ??????


3. Profit!

1. Share photos


2. ??????


3. Profit!

1. Make office-tool AJAX app


2. ??????


3. Profit!

1. Make social bookmarking service “better” than del.icio.us


2. ??????


3. Profit!

1. Make social news site “better” than Digg.


2. ??????


3. Profit!

I could go on all day. Sure, if you can keep your expenses so low you can rely on massive page views for advertising, then this will work out fine.  However, it feels like a lot of these companies are spending more than they’re probably bringing in….let’s just hope they don’t hire any Underpants Gnomes to do strategy for them.

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Entry Filed under: Random, Startups, Web 2.0