Is Web 2.0 Joining the Deadpool?

The Financial Times had an interesting article this morning which suggests that Web 2.0 has substantial problems with generating revenue. I’m not sure that this news is much of a shocker given the increased discussion recently about revenue generating businesses. Another highlight of the article is the discussion about ridiculous valuations being given to some of these companies.

One of the most infamous investment which produced a sky-high valuation is Slide who was able to obtain a $500 million valuation. According to some insiders though, the investors in Slide are not sure why they produced such a crazy valuation. RockYou, a competitor to Slide, has also been facing difficulty in raising a new round of funding and instead opted to raise $1 million while continuing their search for favorable terms.

Regardless of valuations, social features will continue the trend toward ubiquity as the new social data “portability” services begin to launch in the coming months. Nobody has yet to develop a large scale sustainable model of monetization and given the current economic environment, it is likely that the trend continues. This trend leads to the question of: what are web 2.0 entrepreneurs expecting out of their investments?

I think that most of these companies were hoping for future acquisitions by Google, Microsoft or Yahoo! Others were intending to generate revenue from advertising but unfortunately I don’t see that as a long-term sustainable model since inventory is practically infinite at this point. Do you think we’ll begin to see more legitimate business models or do web 2.0 companies not need substantial revenue?