Is 'Web 2.0' Another Bubble?

Carl Bialik from WSJ writes "Two tech VCs, Todd Dagres and David Hornik, debate whether there is a bubble in so-called Web 2.0 companies looking to cash in on a resurgent online ad market. In the WSJ.com debate, Hornik writes: 'Venture capitalists will rationally stop investing in ideas that don't bear fruit. Those that do bear fruit will gain traction and either be acquired or go public. Those are the traits of a rational market in my mind.' Dagres responds: 'I think the Web 2.0 space will have a higher mortality rate than other segments of the overall media and technology industries. There are far too many MySpace and YouTube genetically challenged clones. All but a few will fail. The winners are generally the ones that get in early and out before the bubble bursts. There are rare examples of bubble companies making it through the bust and going on to become successful and valuable companies. By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store.'"

Is that a lot or a little?

By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store.

I mean, have you seen a Costco on a Saturday before a ball game?

Figures dont lie...

By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store.

Cash Flow != Profit.

Costco has a incredibly high cash flow and an absurdly minimal margin. So do grocery stores. Facebook, on the other hand, has what im willing to bet is a pretty high margin on its fundamental product. This has to be one of the most utterly stupid, biased, half truth lines ever.

Heres an equally accurate (and equally misleading and biased) half truth in the other direction:
Facebook has nearly 50 times the profit margin of a Costco, walmart, and target combined. Clearly Retail is a bubble about to burst.

Id take Reaganomics over this kind of bullshit financial analysis any day.

Re:Is that a lot or a little?

I mean, have you seen a Costco on a Saturday before a ball game?

And people say Americans have no culture.

 

There is no such thing as Web 2.0

And the only bubble to burst is the term 'Web 2.0'. The sooner the better.

yes no fud notfud maybe

Seriously, that's pretty much all you can say about this.

Federal Reserve

It's a bubble because the FED is printing too much money. Eventually foreign investors will figure it out and the dollar will go down the toilet. You've been warned.

Re:Federal Reserve HEY MODERATORS!

It's a bubble because the FED is printing too much money. Eventually foreign investors will figure it out and the dollar will go down the toilet. You've been warned.

I'm sorry, but this should be modded +5 insightfull, not -1 offtopic. The fed printed up a bunch of money, used it to buy US bonds (to finance the war in Iraq), and now people are supprised that the price of every commodity across the board has doubbled in the last 5 years. Well, hint hint, they haven't - in "real" terms it's the dollar that's gone down in value far more than the commodities that have gone up. The only problem is that they loaned out so much freaking money that now society is saturated in more debt than it can pay back. By any standard, the US is bankrupt.

Well, guess what. They only have one choice: "print up money and buy stocks" and that's exactly what they've been doing. But it will fail for the same reason that any central planned economy fails, and it will be very very ugly. Forget stocks, people should buy gold and prepare for the US dollar not to be a currency anymore. It really is that bad.

Re:Federal Reserve HEY MODERATORS!

I reckon you're basically on the right track, but it's very unlikely to result in armageddon. What'll happen instead is that china, japan, opec etc will get tired of losing money on their dollar reserves and will diversify (are already diversifying) and start selling the US bonds, the dollar will fall further, interest rates will rise further.

It will however balance out. China, Japan and OPEC can't simply dump 2-3 trillion dollars worth of bonds, they would be insane to do so. Instead they'll simply make Americans pay their debt. The US is just going to be saddled with high interest rates and high inflation for a while. At the end the dollar probably isn't going to be such a favoured reserve currency and Americans will have to work that little bit harder, just the same as the rest of the world.

They do currently have another option. Stop printing money and start running a surplus budget.

Oh Btw, the big problem isn't Iraq, that's just causing a gradual slide, it's the retirement of the baby boomers, we should start to see the effects fairly soon.

 

Silly Canadians

Silly Canadians. You have enormous oil reserves. Guess what that means? It means we Americans will find some "evidence" or another to invade your country and take all your resources. All that war booty inflow will help us pay the debt on our treasury bonds for decades to come.

A bad thing?

If the Web 2.0 is about user-generated content, is it a bad thing if it can't be monetized easily? I mean, I thought the point was our Web, our way?

Web 2 - Cash Flow?

This was sounding reasonable until the last line...

"By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store."

Different markets, products, etc. Not even close for comparison. IMHO.

High Startup Cost

While I agree that we're probably about to have a minor watershed of dead web 2.0 companies, something that's often neglected is that websites are relatively inexpensive to maintain when compared to a brick and mortar location. You pay for bandwidth, new development, and storage.

If managed correctly, this is far less expensive than maintaining a 'real world' location.

If I were an investor, I wouldn't write off the Web 2.0 companies as a whole, but I would be leery of things like high salesman salaries, a large management to production employment ratio, and an absence of realistic business plans.

We still have the best of the Web 1.0 bubble with us, and they're profitable. Five, ten years from now, we'll have the best of the Web 2.0 bubble with us and will be speculating about which of the 3.0 companies are next to go.

Facebook and MONEEEEY

Part of the issue with a site such as facebook is that their business model is not specifically oriented toward making money, it seems that even though facebook offers space for advertisers to buy, there is not cost based usage, and thus no way to net profit after their immense operating costs. (Bored college students clicking refresh waiting for messages does a number on a server). To turn a profit companies such as facebook have to offer a service that isn't available anywhere else for free, and unfortunatly for them there are plenty of clones.

In addition to offering unique services the target audience is not one that typically is willing to pay for these services, college students and high schoolers which make up a majority of facebook's userbase just don't have the disposable income to spend on an online service like this.

As to the article about Web 2.0, if companies dont come up with a unique offering (being the first to develop it) and get out before their operating costs well overrun the profits gained, they will bust and the "bubble" will pop, it is an inherently flawed system, because as any economics student would know, for a social network the most significat barrier to entry is going to be gaining a "street hype", the rest is easy.

Web 2.0 Url Please

Can someone please give me a URL to a site that is "Web 2.0". I just can't see why Web 2.0 isn't just another marketing and pc-world reading wannabe word. I'm guessing it means a fully fledged AJAX web site without page transitions that looks like a desktop app with some huge flashing eat a joes sign banner ad.

Re:Web 2.0 Url Please

"Well then, whats so new and cool about Web 2.0? I've been using slashdot way before they coined the phrase."

Some businessmen somewhere realized that they can use "community produced content" to drive their sites rather than having to pay for writers and editors to produce content.

Our boss just gave us the "we will move toward web 2.0" speech in our "year and review" meeting. Free, up-to-date content (via forums) was the reasons he gave for moving toward "web 2.0".

That's all fine and dandy. Except that achieving a GOOD community driven site is not easy. You really need to reach a critical mass of users before your site's community will generate good, useful content that will attract more readers (and thus grow your community, and ad dollars). Would slashdot be as appealing to you if the community was only a handful of people? The news comes late, and you don't even get the whole story. The whole reason you come here is for the community's feedback to the stories. Most sites don't achieve anywhere close to this level of success, and their forums lie dormant with at most a couple of posts.

Eventually managers will realize that the promise of free "web 2.0" content is not as easy to achieve as they thought, and the pendulum will swing back toward "web 1.0."

Re:Web 2.0 Url Please

http://calendar.google.com/ [google.com]
http://www.flickr.com/ [flickr.com]
http://www.wikipedia.org/ [wikipedia.org]
http://del.icio.us/ [del.icio.us]
http://docs.google.com/ [google.com]

You might try Tim O'Reilly's [oreillynet.com] explanation, since he coined the bloody term in the first place.

Oh, and of course you heard of and used web 2.0 sites before anyone called them web 2.0. Think about it. Tim O'Reilly didn't sit around and think, hmm, let's come up with something we could call web 2.0. What would it be? And then went and made a bunch of people start implementing his ideas. It is descriptive, and the term to describe something (as happens pretty much always with history) came after that which is described. There had to be a web 2.0 before anyone could recognize it as something different from what came before and name it.

tagging beta: yes

If you have to ask...

Web 2.0 looks to me to be the same as the .COM bubble. There's a bunch of hyped technologies, a bunch of consulting companies monopolizing the HR, a bunch of VC firms with slush funds to melt, and very few people that actually understand any of it. I don't see any changes to marketing or project hype; a presentation to my 2004 technical college class sounded like it was written by c.2000 .COM gurus. All in all, it seems to me that the Web 2.0 bubble is based on the same psychology as .COM: "Anybody who understands the technology is too dumb to understand the business".

Let me try and expound on that last statement a bit; it is based on personal experience, not some knee-jerk reaction. I got hired as a consultant about 9 months before the .COM bubble burst. I knew a crap-load about CGI and server-side scripting and HTML and Unix and Apache and so on. They seemed to pay me well, until I took into account the down-time between contracts. Moving out of the IT industry didn't seem to be an option as long as I was in the recruiters' databases. On the bright side, I'm not so dumb about the business any more. The business is effectively this: "I don't know how to implement X, but I know how to bully some techie dweeb into implementing it for me for a tenth of what it's worth."

All of the latest marketing and hype for Web 2.0 seems to have this same negative attitude about tech. dweebs. Geeks become slaves, IPOs go through the roof (but you can't afford the shares on a geek's salary) and companies sell vapourware. Projects go over budget, get extended, fire their entire team, hire more expensive consultants and extended again. The last contract I was at was still suffering from this crap. The product had been in development for 4 years by 2-3 people full-time, and I could still write a better version in 6 months by myself.

If there was an obvious decline in corporate corruption, I'd say that Web 2.0 might not be such a bubble. AJAX and other "dynamic" approaches do offer a better end-user experience. Broadband content is commonplace. Blogging is popular. But the overall negatives vastly outweigh the positives. We need to stop thinking about technology as a short-term investment strategy, and consider the overall societal impact. I'm not in it for the IPOs myself; I hope those that are start to listen to the geeks. "Don't make me angry; you wouldn't like me when I'm angry" :P

mandelbr0t

Irrelevant

Ultimately a bubble or not is irrelevant. Today investments in Internet technology are considerably higher than they were during the peak of the IT boom. A boom-bust cycle is perfectly normal for the early stages of just about any technology. Short term expectations are usually inflated but the long term impact is consistently underestimated.

Information technology is developed at an exponential pace - and we are nowhere near a saturation.

Re:Irrelevant

“Wall Street is always the last one to the party, drinks the most, then has a huge hangover.” — peter penguin

Just ads!?#@!

"surgent online ad market"

Really, if all web2.0 is about ad supported services, then we are truly heading for a bust. Ads are like having prostitiution support your schools. Also, features such as "more collaboration" is great, but it not a revolutionary thing.

Great, another fine use of all those MBA degrees on Wall Street.

Pretty much

I'm reminded of a Slashdot comment [slashdot.org] from a ways back:

The new dot-com business are like donkeys chasing a carrot on a stick. They just keep on walking, never getting any closer to the carrot, but expending a lot of energy (money). They need some company to come along and give them the carrot.

I call this "The Paul Graham Business Plan".

Hopefully

*crosses fingers*

I hope Web 2.0 is another bubble

In 1997-1998 you could land a decent tech job just by knowing how to edit a file with vi. The job market pendulum has swung back to the side favoring employers since 2001 or so with hundreds of applications being thown at every single position.

Re:I hope Web 2.0 is another bubble

Low unemployment does not mean high numbers of people employed. People move to other geographic areas, other careers, retire early, or stop looking for work. I live in a city that has 'improving' unemployment numbers. But that is because tens of thousands of people have left the area. Actual employment numbers have not increased.

High-skill jobs do go unfilled because the requirements to fill the job are unrealistic. i.e. someone with 10 years experience in .Net with a master's degree who will work for under $40k per year. If the job really needed to be filled, the market would make it happen by paying the right price.

So will there be a Web 3.0?

Or will we call it Web2008? Maybe WebXP? How about WebDuo2?

=P

Clones or no clones, it's the insight into people

Advertisers, marketers, they want to adjust society to create market friendly conditions for their products. This doesn't have a high success rate.

This "Web 2.0" thing, is basically the advent of millions of people expressing their lives and opinions openly and freely and now marketers and advertisers have a gauge on society and where it's headed before it even gets there. This isn't about MARKET trends, this is about SOCIETAL trends and right now the suits of the world have trillions of bytes of information at their disposal to make decisions on what the new product will be and how it will be sold to the masses.

This is DEFINITELY not a bubble that will burst at all. Welcome to the new way of doing business. This will be both great and horrible for the masses. Because of society exposing itself like never before, "underground" cultures are going to be exploited far more quickly. Originality will be harder than ever to achieve. At the same time, we'll probably start seeing less focus-less advertising that is just trying to get anyone anywhere to buy a product they don't want or need.

I welcome any sensible debate on this...

To point out the person pointing out the obvious.

'I think the Web 2.0 space will have a higher mortality rate than other segments of the overall media and technology industries.'

Wait a moment, the characteristics of a fast moving segment of the business world is that it moves faster than the other segments?

Wow. I wish I could be an analyst.

My prediction for 2007: Thirsty people will continue to buy water.

web 2.0

there is no "bubble" in web 2.0.

the point of websites such as facebook, youtube, digg, etc. are not to stay aronud forever. instead, the point is to take advantage of technologies and trends today (broadband, social networking on the web, etc.) to create something interesting for people.

sure, ad revenue off a website is nothing compared to a costco store. but for paying a few hundred bucks to get your site colocated or hosted and then running ads, you can sit back, relax in a chair, and watch money pour into your bank for doing essentially nothing -- IF you made a hit site, that is. And if you didn't, oh well, small investment, a few bucks of hosting. big deal. and if you really made a hit, perhaps someone will buy you out and give you even more money and start taking care of your lawsuits.

i think the real characteristic of web 2.0 sites is low initial risk, and lots of money if you do it well. and then sooner or later your website gets superseded by something else, just like google took over altavista, just like firefox and ie took over ncsa mosaic, and so on. when that happens, you just move on with life, happy that you did something cool for a few years, and happy that you can retire with enough money already.

it's not about keeping the bubble forever. it's all about making a really pretty bubble for as long as it lasts, and then retiring.

boredom

If Web 2.0 means sites that aggregate info that isn't boring, how can that fail? If it refers to sites like Facebook, where people can connect with real people, how can that fail, unless everyone is boring to everyone else? People go out of their way to find what interests them, but not TOO far out of their way. Minimizing the work of finding what is interesting--is that Web 2.0? Speeding up page-loads? Speeding up connect times to what is interesting? I don't see anything really new about the info available on the net. The only difference is how it is easier to find what one wants.

Old news...

There's already several items regarding this showing up in my mashup, and I wrote about it in my blog, and I talked about it extensively in my podcast, and I updated the wiki. ...sorry, I can't go on. If I spew any more stupid buzzwords I won't be able to tell if I'm puking or not.

Its all about the CPM

For some sites this is a bubble.

TechCrunch makes $60,000 a month for just 2.5 Million page views. Thats $24 CPM ($ per 1000 page views), or 2.4 cents every time a page is rendered. This bubble will burst.

The average joe is lucky to get $2 CPM. Which I think is much more reasonable.

http://money.cnn.com/magazines/business2/business2 _archive/2006/09/01/8384325/ [cnn.com]
http://www.sitemeter.com/?a=stats&s=s26techcrunch& r=33 [sitemeter.com]

Audiences beg to differ

We're not reliving 1999-2001, we're reliving 1996-1998. The difference is Google, Myspace and YouTube are actual phenomena, unlike Webvan or Pets.com. Myspace is possibly the most popular property on the Internet, and YouTube is the leader of video, which Tech/Telco/Media has been buzzing about for the last ten years. Ebay and Amazon, Internet success stories, are barely fighting off sites like Facebook, Craigslist, Wikipedia, and Blogger.

Baidu, Digg, Flickr, Orkut, Tencent QQ, Photobucket et al are probably going to be worth buying sometime. Get worried when you see sites like LinkedIn and Evite in the news...

Web 2.0 is...

A stupid marketing term.

Anyone knows where this term comes from?

Real Web2.0 Profits

The real profits of Web2.0 come directly from the areas we don't think they're coming from. People are very likely, because of the supposed anonymity of the internet, to post things publicly that they normally would not discuss in person. Also, they are more willing to post their tastes publicly than would normally be discussed.

When was the last time you read someone's favorite books, movies, or TV shows off of a Facebook or Myspace profile? What about the comments on some recent product purchase in a blog (that's even what my blog is about)? What goods could you see in the background of the latest hot YouTube video? Ever wonder why your Gmail doesn't want you to delete old messages, even if they're useless, but instead "Archive" them?

"Web 1.0"'s advertising-driven model was about getting users to click on their ads. Companies would throw ads everywhere, with the hope that people would bite. Web 2.0 is more about gathering background on customers so that retailers and manufacturers can market more successfully to them. The ads on digg can look at what you've dugg in the past, so that they can have a more informed base for what they're going to pitch to you. It's one thing to say that a sporting goods company should advertise on ESPN.com and a software developer on Slashdot, but if you take your market research further than you can advertise for the perfect place to go after your team's next home game on ESPN.com or where you can find some good reference books for your language of choice on Slashdot.

It's not about getting in and getting out. It's about the data you collect. And if these companies are smart then they can bill on a subscription model for their customer information databases and be in business for quite some time. This is because background data is vital to marketers, and they will pay exorbitant amounts of money for the data. This should more than offset the operating costs of a website.

great!

By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store.

now we're going to see a bunch of /.'rs going out there and opening up Costco stores...good job!

MySpace vs YouTube

You can't tell me myspace.com is worth 850 million. That's just rediculous. Even in it's prime, Myspace was nothing more than a flea market of degenerate culture. But then again, I look at Rupert Murdock's other holdings and I can see why he was so enamoured with it.

YouTube is different. I see potential here. If anything can penetrate the caustic grip of the few transnational corporations who own the media and information in United States, it may be Google's YouTube. There are a number of ways they can generate revenues throught the site, so we'll see how it all unfolds. My fingers are crossed.

Like, sooooo 2006

It's all web 3.0 now. 2.0 was a flawedconcept, go with 3.0. It is the most reliable, most secure, largest ROI and lowest TCO http://www.iht.com/articles/2006/05/23/business/we b.php [iht.com]

It leverages collaborative synergies in an open and proprietary way to deliver value for interactive component architecture.

It is so now, so modern so YOU! The smart set are 3.0!

Seriously, does anyone doubt me when I say that IT is just like the fashion industry?

That's why in 6 months I hope to be done with it.

web 2.0 - forget it, run silent, run deep

Some ideas... Return to your roots. Forget bubble hoopla, focus on solid operating plans, and execute. It's interesting that web 2.0 popped up, however in our case we're focused on a larger population/sociological phenomenon. Avoiding fads that do not add value is wise. However, if there is some meaningful stuff in web 2.0, which is really different than what people were doing in the 2001=2002 nosedive, it should be considered. But there's not much of that, really. Whether or not something is web 2.0 has no impact on revenue and profits, I am not sure if having a tagcloud rather than an ad makes sense. What is the revenue coefficient of the tagcloud? The last point, design - simplicity - for the person who just wants to get in, do something worthwhile, then get out, the a service should support this imperative. Remember that those who know or care about web 2.0 are in the small minority of active web users; by the time a larger group knows about it, it will be over.

Slashdot Skeptics

As someone who works for a company that would probably qualify as "Web 2.0", I'm really sad to the see the skepticism of Slashdotters. I can understand why though: it's the Slashdot bandwagon to jump on. Dump on Web 2.0 because it's all just hot air.

Personally, I'm refreshed at the resurgence of technologies since 2003. After the bubble burst, there was little or no investment in tech/Silicon Valley. It was no-mans land.

Since then, I've seen a bunch of products that would be classified as Web 2.0 that I found exciting. To many it's just a marketing word, but to some, like me, it means an evolution of what we had from "Web 1.0" (or the web back in '96-'01).

Here are some:

• digg/reddit: stories that are truly user moderated. sure it's not perfect but a way for the community to submit and vote for stories. more freestyle than slashdot.
• flickr: finally someone got something that had been done (photos) but made it easy and friendly for everyone.
• myspace/facebook/your social networking site here: yes, the social thing has been way overdone. but after you get over the initial bitter taste in your mouth, you realize that there is some value with maintaining a network of friends. more competition can only mean better products. as much as you mock the wanna-bes, competitors or the fact that a concept seems overdone, competition drives innovation.
• youtube: video for the masses. certainly didn't exist in web 1.0. sure a lot of it is copyrighted content, but there IS a large amount of legitimate use if you actually use it that way. i personally use it to upload videos i want to share with friends. i've also found some individual artists that create AWESOME content.

I can go on and on. Web 2.0 doesn't just mean AJAX. And, frankly, AJAX has made interface much better in some ways. All user-generated content isn't crap. Yes, there are lots of it but you'd be stupid not to expect it. But don't let the crap make you think that there are no gems. And, finally, there is some value behind social networking and bringing the web to the common person who is not a geek, does not know HTML, barely has a concept of a URL, and simply wants to use the web to share their digital photos, home videos, or maintain their network of friends online.

Time for Web 3.0!

Seriously, why did we wait so long? It's been a very dry spell between Web 1.0 and 2.0, with about 5 years of unemployment and underpaid jobs for us geeks.

For the future, we should aim to launch the next gen faster. It seems investors don't care about their money anyway. One should assume that they've learned their lesson after the dot.com bubble burst. That the market isn't limitless and that copying a concept isn't profitable.

Well, it seems they don't learn. It's just the same crap all over. A handful of sites with good ideas, quickly copied by others. So let's start brainstorming for the Next Big Thing (tm), so we got something ready to use as a carrot for them when this bubble blows up.

Sustainability

Hornik writes: ...'[Ideas] that do bear fruit will gain traction and either be acquired or go public. Those are the traits of a rational market in my mind.'

I find it odd that so many people think like this. I.e., that to be a success a company MUST be bought, either by the public or by another company. In either scenario, the company being bought loses most of its capability to be rational and agile... so selling is an act that destroys value quite a lot of the time, not just in terms of lost profits to the company, but in terms of lost quality available to the public via the company's output, and lost diversity in the marketplace. Remaining privately held, and making enough money to meet expenses and stream some profit to enough interested parties, is a worthwhile and oft overlooked goal.

Are we STILL discussing if such a thing exists ?

The only time web 2.0 comes to my mind is when clients ask "some little bit of this and that" to "lighten up" their site. and they dont seem to care much about it either.

Re:Shhh...

shhhhh ... don't tell them what we're up to

Re:What is this web 2.0?

Seriously .. nobody really knows what "web 2.0" is. In my head, it basically consists of:

    - google / gmail
    - wikipedia
    - blogs
    - youtube
    - maps.google.com

A web 2.0 site is one where the users provide the content.

Google is not [it's just a search engine].
Gmail is arguable, but would likely fall into the "not" category.
Wiki is.
Blogs are not (unless the main draw is the comments, ala Slashdot), but blogging sites (blogger, livejournal) are.
YouTube definately is.
Maps is not (modulo the Maps API).

Other examples: Ebay, discussion forums, dating sites, social networking sites.