[TomOfTTB]

Actually I think you don't get it. What you're missing is that the whole purpose of this article is to refute the thinking that you obviously subscribe to (given your comment).

So it isn't that he doesn't see your point of view it's that he thinks you are wrong (he obviously sees your point of view because he wrote a whole article that's clearly intended to refute it)

It seems to me that, by thinking he must be too stupid to see your point, it's you who are missing the point. I mean, he might not be right but at least he's got enough perspective to see that there's another side to the argument.

[amobilebiz]

Couldn't have said it any better. Companies like Digg & Facebook, it is my belief, don't even have IPO even on their radar.

He is 100% right when he says that "building a product and building a business around a product are two very different things". This is the problem that Web 2.0 companies realize after they start and gain critical mass. Sustaining that growth rate costs significant capital regardless of what open-source technologies or inexpensive hosting platforms you build upon.

The real problem, in my eyes, is that VCs and other investors see the critical mass first and dump loads of cash into these startups without demanding a viable revenue model and I don't mean relying entirely on AdSense revenue. While Adsense can be a good starting point to generating some revenue it should not be looked upon as a means to an end.

The problem with Web 2.0 companies is that they all have one underlying theme in their business plans. Gain traction, obtain substantial outside investment, and then move on to something else by selling out to the highest bidder.

While I do believe that companies like Digg and Facebook could generate substantial revenues, what is their motivation right now to do so? Investors continue to dump money into them and investors are fighting to own a piece of their "empires" without viable revenues so why deviate from that course. Right now they are only looking to grow that critical mass further and eventually look for the highest bidder that will move the founders to the next project.

Web 1.0 companies (or pre-bubble burst companies) saw IPOs as a viable means to an end. They were focused on generating revenues as large revenues at the time equaled successful IPOs.

[jwesley]

"The whole purpose of this article is to refute the thinking that you obviously subscribe to (given your comment)."

What type of thinking is that? That VC companies are required to shoot for the home run exit? That's not a mode of thinking, it's the reality of the VC industry. Lean, efficient, profitable companies are great, but unless they aim to become big businesses they are not VC worthy.

As for the other side of the argument, I must be too stupid to see it. All I could glean from that convoluted mess was that Digg and Facebook should be more like Google and eBay.

[cstejerean]

For the VCs to have a big exit the company eventually most be profitable, very profitable. That has to be the ultimate goal. But to get there you can't just keep giving things away for free and hope that one day you'll magically figure out how to make money.

Even if you'd rather shoot for being acquired, it still makes sense to try and reach profitability as soon as possible. If you keep living on VC money forever sooner or later you run 2 risks: 1) the VC money will dry up, like in a bad economy 2) the valuation of the company gets so high it doesn't make sense for anyone to acquire you.

[ojbyrne]

For both of the companies referenced, the founders have been reported to have "cashed-out." I don't think either 1 or 2 is part of their thinking. Just follow the standard VC Web 1.0 agenda - get big fast. Home run or complete failure.

People seem to have forgotten all the failures that produced. VCs are fine with 9/10 complete failures, as long as there's 1 home run.