Sometimes Internet startups have a business model. Sometimes they don’t - and the story typically boils down to “we’ll figure it out” or “we’ll sell.” For consumer media and information services, more often than not “figure it out” means build a large enough audience to sell advertising around it. For platforms and tools, founders aspire to build a service so valuable people will pay for it, like SixApart’s Typepad blog hosting service, or the group collaboration service Basecamp from 37Signals. Skype, the Internet telephone service, is the most dramatic example of the “sell it” exit strategy - Ebay paid $2.6 billion for Skype in 2005.

The advertising business model for service built around content sounds simple enough, and charts showing continued growth of online advertising may help with whoever needs convincing. But don’t count on it. The charts won’t justify or save a business when there isn’t a business to begin with. Witness: Thoof. It was a social news service - another Digg wannabe aimed at building personalized news experiences based on user preferences or, in the case of Thoof, user clickstreams. While the technical case for the superiority of the Thoof experience may have been compelling, the business fell flat. TechCrunch reported that Thoof shut down this past weekend, and as of this writing Thoof points to another social news service, Reddit, that managed to be sold to Conde Nast in late 2006. Good for Reddit; not so good for Thoof.

• Lesson: Great ideas do not automatically lead to great businesses.
• Question: Is there a sustainable market for a funding model that enables great ideas to survive, even if they don’t become smash hits that produce huge windfalls for the investors or founders? Or do we already have that model in the venture market?

For a dose or reality, visit the TechCrunch deadpool. It chronicles failure. Or, if you want to go back further, here’s a quick recap from CNET of the biggest failures of the 1999-2000 Internet bubble.

See:

TechCrunch: Another Personalized News Site Bites The Dust

Gigaom: Thoof Goes Poof!