The Internet Startup World is Getting Crowded!

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Ever feel like every idea you come up with, someone else has already thought of it?   I’ve been feeling that way a lot lately and I’ve become particularly adverse to it, realizing that the Internet is a particularly efficient economic system, meaning there is so little friction, it is all the more possible and likely that one business will dominate an entire industry online.  For example, why use any other social networks except Facebook, because it is the best, or Google if you are searching, because it is the best.  Prior to the Internet, most businesses were limited by geographic inefficiencies which prevented people from competing cross-territory unless they were truly exceptional.  And even the exceptional weren’t able to compete across territories until the introduction of mass media in the 1950s.  But because the Internet even favor the local business, it is easy for businesses across the entire world, to compete for your consumption.

So then where does the small business without a great deal of funding hide?  The niche, of course!  Oh but wait, you must find a niche which isn’t yet crowded.  So why is it that every idea I come up with, no matter how niche and no matter how limited the potential market demand, there are already a dozen competitors, two of which will have $500k in angel funding to push it forward?

I recently heard a few mind-blowing statistics that help to explain the phenomenon:

1. There is over an application per *minute* flowing in to YCombinator now, for its latest cohort of wantaprenuers.

2. There are over 4 billion websites in Google index as of September 2011.

3. There are more than 120,000 new websites applying the Google AdSense network every month, as of earlier this year.

4. 1 out of every 1,000 SaaS based startups in Silicon Valley will be considered a “success” 5 years later. That’s 0.1%!

So the statistics certainly seem to validate that there is a lot of competition out there for starting a new business online. And if it seems like you’re having a hard time finding a good niche, that probably means that your eyes are open and you’re thinking through this in a reasonable way.   Many will say you need to just hurry up and get started…there’s probably some truth there, but the odds being so low, its probably a good idea to cool down a little bit, learn the market place and be strategic about your entry point. Otherwise you face a very high risk of wasting considerable time and money, with nothing to show for it at the end.