I like Web 2.0. It’s a great idea and a fantastic buzzword. It allows me to seem “in the know” to people who are only just beginning to get Web 1.0.

But the problem is that Web 2.0 seems to have a slight identity crisis, certainly within the business world. A lot of discussion has happened and is happening around the idea of revenue and cash flow for web 2.0 businesses.  This comes on the back of Twitter securing $15m funding for continuing to grow it’s business, when there are many in the business world who are asking where the business model is.

This article in the FT a few days ago, it suggests that most financiers are at the very least unsure about why they should invest in a company.  Web 2.0 to them is about social online behaviour, and so far, very few of the recent startups has shown enough promise to start making money.  Twitter, for example, is being backed because of the strong early adopter user base it has grown very quickly.  The interesting thing is that there’s still no obvious business model, even now and it’s been going a while.

But maybe the key is that it is changing our online behaviour.  It used to be just about email and phone, then came online ads, and now it’s about putting out your online personality.  This will create groups (I don’t want to use the word “crowd” here) that can then start to become the next business communities.  So maybe, Twitter will just become a community around which business is done.  What business and how much that will make for the users or for Twitter is unknown, but Dell and others are beginning to use Twitter to get information out there about their businesses.

Some of the other businesses that are touted as Web 2.0 are Slide (how it’s worth $500m I will never know) and Ning. Because all of these businesses start with open source software and tend to be beta versions at launch, then the technology tends not to be the valuable part.  The value appears to be in the number of users that they can get as quickly as possible.  So making something that is “useful” and/or “fun” for a large number of people appears to be how to make a Web 2.0 startup. Monetisation is not the key.

Jemima Kiss points out that it’s not simply enough to look at the finances of a business.  Web 2.0 is still young as an industry (if indeed it is a separate industry to the “normal” web) and these businesses springing up are less about the traditional and more about the innovative side of business.  Maybe Web 2.0 is the future of all business and maybe it is going to be much more disruptive than even we are seeing now.

My opinion is that Web 2.0 companies are here and here to stay and I like them.  I still fail to see how Twitter is going to make a lot of money (and certainly not out of it’s current user base) without someone there creating a micro-payment model (of some sort) on top of it.

The key to a successful Web 2.0 company appears to be finding the right angel to invest at the start (if needed) and the right VC to fund it after the initial launch, and the right company to purchase after a short-ish amount of time.  It’s less about the business model and more about fashion.  Maybe the business model is more like that in that it’s more of the web’s “luxury item” than previous companies were. Luxury and fashion may be the way to view Web 2.0.