Bubble 2.0

You went to a great party, had too good of a time, woke up with a terrible hangover, and promised yourself you wouldn't do that again.

Then the people who threw the party invite you to the next one.

What do you do?  Go, of course.

I wonder if that's what's happening with all the activity in and around Web 2.0 right now.

Money is being made all over the Internet these days.  Some of it by good old fashioned revenues and cash flow.  That's the foundation for the recovery in Internet investing we've been enjoying for the past couple years.

But increasingly money is being made the way we made it from 1998 to early 2000; mometum investing, speculation, fast money chasing deals, caution being thrown to the wind, and amateurs jumping in on the action.

It's hard to say no to a good party.  I am struggling with the temptations myself.

Because some of the Web 2.0 stuff is very real.  The Internet is being transformed by lightweight and highly compatible web services, a quickly developing architecture of participation, business models that rely on efficient lead generation, a very low cost of entry, and an equally low cost of scaling.  Many Web 2.0-based businesses can have huge operating margins.

But for every good opportunity, there are twenty copycats and hundreds of bad ideas. In the bubble 2.0 market we are now in, these copycats and bad ideas get funded.  And they create all sorts of problems.

I don't have any good answers to these problems, but I'll say this:

If you were at the first party, then you should never forget how it felt when it was over. 

Drink responsibly this time.

Comments

[Bill A]

Amen! It once seemed as if VCs had so much money that $10 million was trivial, and a slick PowerPoint and a freshly minted MBA were all anyone needed to get that much. When the bubble broke, a lot of good businesses went down along with the slideware companies.

I think some past funds were created based not on how much money could be made in the technology market, but on how many people wanted to make money from that market. Why even create a fund without solid reasons to believe you can increase investor value?

The good news for now is that this bubble isn't growing nearly as fast as the last one, and I believe one reason is that investors, businesses and consumers still remember how bad that hangover was. It's great to see optimism returning to the investment world, but a little caution, just like keeping count of your drinks, will make things better for you and everyone around you.

[BZ]

Well said, Fred. If the last bubble was gossamer, this one might be rubber. We just need to remember that if you overinflate your tires, you might not finish the journey.

[John Furrier]

All new party's have new drinks and drugs. Just watch out for those Ventroids..."Venture Enhancing Drugs".. I hear there is a movement for random tests for CEOs.

[Dean Delandreville]

Why is every boom a bubble now?

The current Internet boom is nowere near where we were at with the last one; the financing end of things has only been going on for a little over a year now (since Flickr); public awareness is basically nill (certainly no Super Bowl ads); and the Internet *is* a disruptive force, so their should be a high-level of investment interest.

That being said, the barriers to entry for most of the new concepts is pretty low, though everyone seems to be having a tough time tackling the elementary success of MySpaces.

And on a related note, you could say that we are in the midsts of a credit bubble, but that is primarily on the cosumer-side of the coin.

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