11 troubled Web companies: The next Kozmos?

Some popular Web companies may be vulnerable to the economic slowdown. Do they face an ill fate similar to that of the beloved delivery service of the last bubble?

Rafe Needleman Former Editor at Large
Rafe Needleman reviews mobile apps and products for fun, and picks startups apart when he gets bored. He has evaluated thousands of new companies, most of which have since gone out of business.
Rafe Needleman
4 min read

"We are going to lose some good companies." That's the warning cry from investors in tech these days.

Some we won't miss, of course: the lame, me-too, or single-featured "products" masquerading as businesses. But be prepared. Some Web 2.0 start-ups that are well-loved by many are in serious danger of falling off the cliff.

The problem is that being loved is no guarantee for success. Even being used isn't enough. Remember Kozmo, the munchie messenger service from the last bubble? Not a person who used it didn't love it. In the interest of building a user base, the company was OK with losing money on every transaction in its early days. But when the time came for it to become a real business, it was too late. It couldn't transition to a viable company, and it folded. It was a tragedy.

Here, in no particular order, are 11 online services companies that could face a similar fate. Several of them are 2008 Webware 100 winners. Like I said, popularity isn't enough.


Although well-used by many and even relied upon by some (like me), Twitter has yet to turn on a revenue model. It's not like the company would lose users, if it set up a minor advertising strategy as a test; people want to see the company make some money. Please, Twitter, turn on the revenue before it's too late.


This is one of the coolest online communication companies I've seen. I like its products and services. But the revenues for running branded chat rooms cannot be all that large. Meebo belongs under the wing of a larger company like Facebook or Microsoft, but with Meebo's expensive valuation and the coming cutback in M&A, I fear that its exits may be blocked.


A very useful service for organizing travel information. Wait, travel? Who's going to be traveling more often during the economic storm we're heading into? People are going to sit at home on their mattresses filled with cash, teleconference instead of go on business trips, and take vacations in their backyards. I fear for this company and other clever travel start-ups.


The real-estate site's revenue model is advertising. Real estate and bank advertising. Unless the real-estate research site starts charging for foreclosure listings, I don't see it doing too well in a hunkered-down economy, in which people are trying to hold on to their homes for dear life, not upgrade.


People love this product. It helps them find music they like. What's wrong with that? Here's what: unfavorable royalty rates could make it too expensive to run. Survival depends on ongoing negotiations with the music industrial complex. They appear to be going well, but the company is very exposed.

Second Life

The Web interface and social network of the future. Except that it's expensive to run, hard to use, and suffers from empty-restaurant syndrome.


The revolutionary VoIP service was acquired by eBay, which someday may be seen as its downfall. A noncore service to the auction site, eBay may well want to spin off Skype to maintain focus. But who would buy it at the valuation that would make eBay stockholders comfortable?


Why isn't it dead yet? It's really a good search engine, and even a small piece of the search economy can generate significant revenues. But running fourth place in a three-horse race is not a good position to be in when the costs of competing are high, as they are in the search market.


This popular mostly European video-sharing site isn't under the protection of a major moneymaker like YouTube is, and it hasn't yet found a way to offset its streaming costs with advertising revenue.


Here's another product I have used and still like a great deal (occasional frustrating slowdowns notwithstanding), but that has a limited upside as a standalone business.

Netvibes' much smaller competitor, Pageflakes, was acquired earlier this year, and that's what needs to happen with Netvibes. But media companies--the natural acquirers for Netvibes--are about to get hammered by a retrenching advertising market, and that may spell the end of Netvibes' survival plan. (The upcoming release of a Facebook product might help growth, but I don't think that's the real issue Netvibes is facing.)


Wounded. Although it's generating a lot of revenue, and under the aegis of Rupert Murdoch, the notoriously ruthless businessman could easily cut loose this social network of yesterday. The momentum is certainly not with this one. This item has been updated from the original post.

See also: The tech downturn: How long and how bad?

And for ongoing coverage: Tough times for tech