More on the Web2.0 Bubble

Posted by Jacob Harris Fri, 07 Oct 2005 20:46:00 GMT

It seems like I’m not the only person thinking about the Web2.0 hype in terms of the previous bubble. There have been two interesting articles posted on the subject, sparked by massive interest in the Web2.0 conference this year (for me, it’s an effect of finding an old exuberant issue of Wired from 1998).

First up, there is a post on the subject from O’Reilly Radar titled If Everyone Thinks It’s a Bubble, It’s Not a Bubble. This quite frankly is an idiotic title. I’m not a VC, but near the end of dot-com boom, even I and everbody knew that things were undervalued and it was a bubble. Still, many people thought they could cash out in time. Anyhow, despite that disappointing start, this article redeems itself with the following insight

Here at Web 2.0, no one believes the mania, at least not yet. No one thinks, as they did in 1999, that we’re looking at new technologies that will, say, wipe away bricks and mortar retailers and leave online businesses in their place. No one believes that old and powerful industries are about to be destroyed en masse by the rise of asynchronous Javascript or data as the Intel inside. These Web 2.0 markers are great developments, and are enabling great applications to get attention and immediately dominate the Web applications they replace. They’ve clearly valuable. As of yet, though, Web 2.0 is a revision of the Web and what has been built on it, not a revision of the world, which was the premise of the last bubble.

Which is very true. As much as we can joke and fret about the Web2.0 hype, it has not been on the level of the hype back in the previous bubble. Where the web was going to annihilate geography, change the way we shop, and connect us all in one happy hive-mind. Expectations are more realistic now on the technical side, but I do wonder if people still believe in Google and Yahoo too much.

From a different perspective, Fred Wilson has answered my silent prayers and given me an example of what a VC thinks about Web2.0 . Fred’s a really smart guy (I am only slightly biased because he’s an investor in Alacra), so I like to think he reflects the thinking among the smart money in the tech sector when he notes:

Last year at this time we were talking about interesting companies like Skype, Flickr, MySpace, etc.

Many of them are gone, gobbled up by the web 1.0 giants or the mainstream media companies.

In their places we are seeing second derivatives. I heard one business described as Google Maps meets delicious, and another described as Skype meets MySpace. When the first derivative hasn’t fully figured its long term business model (other than getting bought), the second derivates are pretty scary.

I am a contrarian at heart. This situation bothers me.

Translation: VCs won’t just fund your mashup because it’s cool. As I was ranting the other day, there has to be more to a business plan than hoping to be be bought by Yahoo or Google, and it’s even sillier to expect fame and riches from doing a mashup. Thankfully, rational voices are prevailing here, so the innovations of Web2.0 won’t be lost in the disappointment of a bubble bursting.