My Guardian column on whether there is a Web 2.0 bubble:
Then, as now, we are forever blowing bubbles
Monday September 4, 2006
Two weblogs that cover what we precociously call Web 2.0 recently threw parties packed with new companies, the venture capitalists who funded them, and the big corporations many hope will buy them. A worried whisper crept across the valley: are we headed for bubble 2.0? Are we witnessing irrational exuberance again?
The fretful signs are many: at Dead 2.0 (dead20.com), a sceptical former entrepreneur finds enough evidence of insanity to fill a daily blog. A recent target was kiko.com, one of too many online calendars, which surrendered in the face of Google’s own calendar and then sold its earthly remains on eBay for $258,100 (Â£136,021) – turning failure into profit. “I started the blog,” Dead 2.0’s author emailed me, “because you can’t walk into a Starbucks in San Francisco without hearing someone talking about RSS or niche social networking and how HUGE it is going to be and all the amazing opportunities, blah blah blah”.
Sounds like old times, eh? So I revisited a similar blog that chronicled the carnage of Web 1.0 – FuckedCompany. com – and found it gleefully announcing the screwups of firms small and big, even including Dell, Delta, and Delphi.
John Battelle, who covered the first bubble as founder of the late Industry Standard magazine and went on to produce an influential conference called – what else? – Web 2.0, noted on his blog that at least 200 companies working in video search have venture funding. The problem, Battelle thinks, is that too many similar ideas are getting money and not enough are failing fast enough. That is because the one true innovation of Web 2.0 is that entrepreneurs have discovered how to start a company for less, using existing tools, and launching while still half-baked. The problem for VCs, then, is that they can no longer make big bets on a few companies; they have to make small bets on many companies and are less disciplined about each of them.
This is not to say that some of these companies are not making money. They are. But PR man and blogger Steve Rubel fretted on micropersuasion.com that too often new media companies are getting ad money from fellow new media companies, which merely recycles venture money instead of earning new revenue. Valleywag.com, a gossip blog from Silicon Valley, handicapped popular blogs based on their proportion of Web 2.0 revenue. One blog is earning a reported $60,000 a month, but most of this is from fellow startups. This is precisely what fed bubble 1.0.
And it doesn’t hurt the bubble-blowers that big, new companies are being sold for big bucks – About.com (where I consult) sold to the New York Times Company for $410m and MySpace.com to Rupert Murdoch for $580m. Each of them is heralded as a success because of ad revenue from the internet’s sugar daddy, Google. One wonders, then, whether we’re in a bubble or a gooble.
But for a reality check, see the Economist’s recent cover asking, “Who Killed the Newspaper?” See also a recent sob story in the New York Times about the demise of the American newspaper empire, Knight Ridder, forced to break up by investor Bruce Sherman. The New York Times said that Sherman had bought up newspaper stocks after bubble 1.0 collapsed because he believed “the internet is not going to be as big a factor for the industry”. Well, that’s a case of the blind buying the blind.
And so it struck me that the most long-lasting, most self-delusional bubble of all was the one that protected monopoly newspapers in America for the last 50 years, since television did them the favour of killing their print competitors. They’ve had no idea how to adapt to the changing marketplace and for years didn’t have to because they still made lots of money. Now too many of them are trying to squeeze more sap out of dead trees.
The truth is that there is no 1.0 or 2.0. It’s not a new world. It’s the same world but it just keeps changing, with new opportunities and challenges, tools and competitors. When a company has plenty of money in the bank – whether from VCs, or from ad budgets paid for by VCs, or from monopoly power – it can avoid the pressure of the marketplace and run a business that would not stand on its own. That’s what bubbles are about – not irrational exuberance but irrational business.
Â· Jeff Jarvis is a journalism professor at the City University of New York who blogs at Buzzmachine.com