I have a problem: I love Web 2.0 startups and software as a service, and I have been using them.
On the face of it, that doesn't really sound like a problem, does it?
Only, in case you haven't been paying attention, these companies are dropping like flies. The ones that haven't gone out of business are laying off workers like it's going out of style, which just proves how little foresight these companies had, or how bad their revenue models suck. These companies obviously weren't paying enough attention to the macro-economic environment (not that it's an easy thing to do, it requires time and work to wrap your brain around it). In the same vein, I should have been paying attention to the fact that they weren't paying attention, if I'm trusting them with my data. My bad.
Now when I go to choose an online software provider, I'm struck by the stark reality that the company I choose may not be around a year from now. That throws a wrench into the whole decision-making process, and starts making traditional software (a la Microsoft, believe it or not) more attractive to me.
Above all else–features, rounded corners, social networks–I do not want to lose my data. My data is the result of my time, which is my most precious asset. If I have the slightest doubt about the long-term viability of a company, if I can't grok their business model, I will not use them.
It's the reason I stopped using Disqus for my blog comments (and am now stuck with TypePad's utterly stupid and useless new comment system). It's the reason I'm backing up my personal photos and videos to Amazon S3 and not solely entrusting them to sites like Flickr and YouTube. It's my version of personal data responsibility.
Listen, startups: if you want my business, you had better figure out your business model and make sure I can understand it. As Mark Cuban recently pointed out regarding YouTube, desperation is not an attractive quality. In fact, if you can expose your audited financial numbers to prove that you're actually making money, I'm much more likely to do business with you.
As weird as it sounds to say this, I am actually very turned off by free software right now.
Even better, let me back up my data somewhere (suggestion: Amazon S3) in a usable format, so if you go out of business I'm not left high and dry.
I think this is going to be a huge psychological hurdle for Web startups in the coming months, much more important than people realize. It is certainly going to kill the SaaS marketplace for the enterprise except for all but the biggest companies.