Web 2.0 superstar companies such as YouTube and Facebook are getting lots of press, and that may lead many to think that all is well in the web world for companies of all kinds. This is not the case. According to Dow Jones VentureOne and Ernst & Young, venture capital firms invested $455 million into Web 2.0 companies in the first three quarters of 2006 alone, but by the end of the year, some of Web 2.0’s biggest stars were in trouble – or closing their doors. Some speculate that the trend stems from natural market forces. A number of start-ups are competing for customers. Revenues at these companies can be small, and while at first a promising idea may attract internet traffic and investors, the long-term successes must start generating profit. This has proven difficult in the Web 2.0 universe, possibly as a result of stiff competition.

None of the promising Web 2.0 companies went public in 2006, and 10 companies known for their promise and potential faced problems into 2007. Let’s take a look:

Guba was founded in 1998 as a place where internet users could download and share video and other media content. But they’re admitting that they cannot compete with the popularity of YouTube. The founder of the company left, and other key executives were not far behind. There are reports that the company is up for sale. Peter Szatmari, Guba’s CFO says the company will recover, but many are assuming the company is on its way out. Guba does offer fast and simple downloads, but trying to compete with companies – such as YouTube – that simply have better name recognition can’t be easy.

Browster received plenty of praise at first. The free browser plug in allows internet users to search lists of links and search links. The main draw is the fast results and prefetching and previewing capabilities of the service. Although the company raised about $5.8 million in initial funding, some critics tagged Browster’s preview plug-in as difficult to use and clunky. Over the last three months of 2006, reports circulated that views of the website dropped dramatically and top browser CEO Scott Milener quickly seemed to find new work at a new company, Vieweo. There has been no official word, but for all intents and purposes, Browster seems to be gone. Other companies, such as Cooliris, seemed to be having more success with customers.

Wallop originated at Microsoft. The company offers social networking space, purporting to help internet users interact with friends. The site is slickly designed and Wallop does give users a way to really control the way personal spaces look. The major drawback, though, may be heavy competition from other popular sites, such as MySpace. Although Wallop was confident that they could compete with other networking spaces, the confidence may have been overstated. In 2006, several key executives left the company. In early 2007, Mark Halstead was appointed as Chief Technology Officer (CTO), and William Hensley became Vice President of Marketing. It is unknown whether the restructuring can help boost Wallop.

FilmLoop is a Palo Alto-based company which offers users the ability to create photo slide shows. The shows can be featured in websites or on a desktop. Recently, the company laid off most of its 30 employees. Previously, the company tried to the sell the business, but failed to do so. FilmLoop offers a solid product and was successfully able to raise $7 million in venture capital just months before the company got rid of workers. What happened? Industry experts claim that FilmLoop’s woes are a simple matter of not understanding an industry paradigm in time. While competitors allowed users to add slide shows to social networks, FilmLoop did not have this function for some time, giving its competitors a leg up on the market. The product is offered for free and creates little revenue, so while the founder of the company is saying that the company will continue to offer its product, there is some speculation as to who will be using FilmLoop when heavy-weights such as Photobucket and Slide are attracting most customers.

Revver is another online video company possibly affected by the popularity of YouTube. Revver is an attractive concept because it promises users that every time their content is watched, they will receive revenue. The major criticism against the site is that it may not protect viewer privacy well, since information about the video – including potentially the ID of the video – is sent back to Revver servers. Recently, two of the three founders of the company bowed out. Much of the problem seems to be competition from other video sites, rather than user unhappiness.

Performancing is experiencing its own pain. CEO Nick Wilson recently left the company and two of three services are closed. The departure of Wilson seems to stem from the fact that Performancing’s ad network was closed without his knowledge or approval. An acquisition by PayPerPost didn’t come through, leading the company to close its metrics service and to rebrand its blog editor. The company could still pull through, say industry experts – but they need to refocus and generate more revenue.

Silicon Valley’s InsiderPages offers user reviews of everything from travel agencies to cars. Despite reportedly solid funding from Sequoia, Softbank and idealab and a concept that has brought big success to Yelp and others, InsiderPages seems to be flagging. The company recently laid off about two thirds of its employees. The problem seems to be with a saturated market which only has room for Yelp, which is currently the only company of this kind that seems to be doing relatively well.

Peerflix was a fairly popular DVD-trading company until recently. However, the company has closed its Canadian offices and has laid off an undisclosed number of workers. Rumours are swirling that the company may have to let go as much as a quarter of its employees overall, but there is no confirmation from Peerflix itself. In early 2006, company co-founder Billy McNair was very confident about the company’s future, reporting that Peerflix had 150,000 registered users and 250,000 DVDs on offer. However, some criticism already existed about the business model. The company’s design simply did not allow users to easily predict when movies might arrive, since shipping depended on other users. Competition from larger companies such as Netflix and Blockbuster might be especially fierce in this regard, as these larger businesses can offer a very large array of movies as well as reliable delivery.

Jobster was until recently the biggest new Internet company in Seattle. The company used tagging and profiles to link recruiters and employees. Although the company grew very fast, there were rumblings about a complicated pricing structure. The company further dug itself in by announcing a hiring freeze late in 2006, sparking rumours of lay-offs to come. Many experts felt that the decision was an indication of too-fast growth, but Jobster inadvertently made the situation somewhat worse. Company founder Jason Goldberg posted a pre-holiday blog post addressing the rumours and stating that there was nothing that employees needed to be told. Sure enough, the job cuts came and Jobster’s handling of the case created a minor stir. The company recently admitted that it has laid off its entire support and sales team. That’s a total of 60 people, or a whopping 41% of its workforce.

BitPass, a company that allowed internet users to pay for online purchases, has shut down entirely. The company opened in December 2003 and gained more than 500,000 buyer accounts during its run. It supported payments for 4,000 merchants and received investment funding from First Data Corp. Despite all the positives, though, the company flagged, and ultimately failed. Although BitPass is currently mum about specifics, the company did recently launch the iMedia Commerce Engine, an initiative which allowed customers to store purchases and money in electronic wallets. Some experts suggest that BitPass’s new initiative did not go far enough. Competitors such as Peppercoin have expanded past digital content to allow users to pay for other off-line services as well.