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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.'"
And the only bubble to burst is the term 'Web 2.0'. The sooner the better.
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.
The next Slashdot story will be ready soon, but subscribers can beat the rush and slashdot the links early!
"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."
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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.
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.
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