Can Tech Start-Ups Survive the Current Financial Crisis?

Revenue. Monetization. Cash money.

Lots of web 2.0 companies have acquired it (in the former of start-up venture capital), but very few are actually earning it (in the form of any revenue whatsoever).

Unless more companies like Twitter learn how to morph into companies like Yammer, something’s got to give.

The current economic downturn is wreaking havoc on a sector that, despite wildly inflated corporate valuations, has failed to produce any bona fide money-makers.

Sure there’s huge revnue potential in business ideas like Facebook and YouTube. But, at this stage, ‘potential’ is all there is. 

In the aftermath of the dot-com bust, many chastened venture capitalists pledged never again to finance an idea scribbled on a cocktail napkin with no viable business model. Too many poorly conceived companies like Pets.com and Webvan had flamed out. The new breed of Internet start-ups needed to have a clear path to profitability.

The discipline did not last. Successes like YouTube, the online video site sold to Google for $1.65 billion in 2006, convinced some venture investors that building a Web site with a large number of users could still be more valuable than making money from paying customers.

Now, as the global economy enters a severe downturn, the relative merits of these two philosophies will be tested again.

The two poles of the debate are apparent in the world of microblogging, where people use the Web or their cellphones to blast short updates on their activities to a group of virtual followers.

Twitter, a start-up company in San Francisco that has become a household name, is the leading microblogging outfit. At least three million people have tried its free service, according to TwitDir, a directory service. But Twitter has absolutely no revenue — not even ads.

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