• December 7, 2022

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During the late 1990s, the world of technology launched what has been called the Internet DotCom era. The internet itself was very new, but developing web sites was relatively easy to do, so people with all types of ideas created a plethora of web apps to reflect their interests and business concepts.

Entrepreneurs created tens of thousands of web apps, and while some, like Facebook, had legs, 97% of them did not.

The poster child for this was Pets.com, which debuted with much fanfare but died a painful death.

Most became a form of speculation with no actual business model behind them. This overpopulation of speculative websites led to what is now known as the DotCom bust.

The operative term here is business model. During this time, I reviewed over 100 DotCom business plans and most projected business growth numbers that were, to be honest, absurd. What’s worse, these hastily created business plans had minimal business strategies based more on guesstimates than hard facts.

The biggest reason for these incorrect projections is that we were entering a new space without precedence. In this era, almost all software was distributed in shrink-wrapped boxes and through some form of retail or online sale sites. The exception was in big enterprise apps that were downloadable as application-specific software.

This period spurred great innovation that helped establish the internet as a center of communication and content distribution. However, thousands of web apps created were primarily new and potentially good ideas and nothing but that.

What separated most failed web apps from the successful ones is when the web apps had a solid business model behind them. The first generation of web apps did allow for some advertising revenue share, but the pot of advertising money per web app was limited and minimal at best.

Without ways to create significant revenue, thousands of web apps bit the dust.

We are seeing history repeat itself with a rush to create apps for the Metaverse. There are some significant differences, though, from the DotCom era. First, the available market for Metaverse apps is small today and will most likely be small for the next two to three years. In the DotCom era, the audience for web apps was in the millions from the beginning.

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Second, the concept of the Metaverse today is a moving target. Does one build a Metaverse app for VR, MR, or AR? Or do they commit to doing an app just for VR as Meta’s Mark Zuckerberg wants to support his VR-heavy Metaverse vision? Or do you bet on Apple’s focus more specifically on AR?

We are so early in developing any Metaverse world that deciding to make significant financial commitments to creating applications for this market is difficult at best.

However, if a developer is serious about creating apps for the Metaverse to get first mover advantage or to create a Metaverse version of their existing application, they would be wise to study closely the downfall of the DotCom developers that failed even if they had a great idea of web app.

As I stated earlier, the reason for most of these failures is that the web apps, perhaps based on good ideas, did not have strong business models behind them. In most cases, they did not even have solid business principles to build a real business around the web app.

When I talked to many of these early web app developers, I would ask simple questions like, do you have a financial mechanism for selling these apps? How will you provide customer service? What are your sales and promotional model? Did you even form an actual legal business that could operate under state and federal regulations?

If they could answer these questions positively, I then asked how they would staff this business and how much they would need to bring in to support their business going forward.

The bottom line is that the web app companies that did succeed used solid business models and had thought out all of the business implications of an operation that would make their app successful.

When it comes to the Metaverse, the market is still too early to determine its potential in the next five years, let alone ten years out.

This means developers should study ways to create applications for the Metaverse, as early adopters will be instrumental in verifying their direction. Ultimately these early adopters may help fine-tune their overall business model.

To avoid another DotCom bust, early content and application developers for the Metaverse must develop business models and have a durable platform to grow their Metaverse business from the beginning.

If they don’t do this, they can expect to join the same graveyard of the DotCom failures, which may have had good ideas but did not have a solid foundation to build a successful business for their product.

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