Analyst predicts Web 2.0 fire sale

Prices for online apps could soon plummet, says Forrester

Shaun Nichols in San Francisco, vnunet.com 11 Oct 2008

Customers could soon see much lower prices for common web-based applications, according to one analyst.

Forrester Research analyst Oliver Young said in a recent report that pricing will become the next area of competition as enterprise web service companies become more numerous and their offerings become more similar.

"On the surface, times look good for vendors in the enterprise Web 2.0 productivity and collaboration space," said Young.

"More and more customers are interested in buying solutions, and those that are buying are doing so for larger and larger deployments. However, despite this momentum, the market footing is set to shift in fewer than two years."

The analyst noted that enterprise users commonly look at services that offer the functions of a hosted enterprise software suite, while simpler tools such as blog and wiki services are becoming cheaper and more widespread.

Additionally, larger vendors such as Microsoft and SAP are moving from software-only models into hosted services.

As a result, Young sees Web 2.0 vendors competing in a market that is more cramped with products that are harder to tell apart, driving much of the differentation to price.

"Overall, Forrester expects that the price premiums that vendors have been able to command will disappear," said Young.

"Specifically, the amount an average enterprise pays for Web 2.0 tools will fall, despite growing numbers of licences per customer."

The markets for traditional Web 2.0 products, such as podcasting, RSS, blog, wiki, widget and social networking services, are all predicted to fall, with only mashups forecasted for growth.

As a result, Young advises companies to diversify and move beyond common features into other business services. In the long term, the analyst said not to expect much more money out of Web 2.0.

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