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So then, given the current state of software patents (seems like they're difficult to attain and even more difficult to defend) how are you supposed to put up barriers to entry as a consumer web company? Are there examples of web/internet companies in the last 5-10 years that have succeeded by following #1?

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There's a difference between "first mover" and "first to market". First movers enter a market space first. First to market means that a company has launched an actual product within that market space. Startups all the time get funded with "just an idea," and even generate "buzz" or whatnot, but the real winners tend to be those who have their niche well-planned enough to effectively utilize those traditional market-force "forces" to their advantage. There are five of them: http://en.wikipedia.org/wiki/Five_forces

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