In 2000, $105bn was poured into young companies by venture capitalists, mostly dot-coms. There was a land grab mentality to anything and everything ‘internet’. Venture capitalists operated with an almost blinkered vision chasing after ‘eyeballs’. The premise being the more visitors a site had the more valuable it would be.
Then it all went pop. Venture capital funding in dried up and the phrase ‘dot-com’ became synonymous with the worst of the IT industry.
Web 2.0 has arrived and promises the vitality of the dot-com era grounded in a heavy dose of realism and sound financials. But have things really changed or are we just heading towards another internet boom and bust?
Web 2.0 or Bubble 2.0?
Venture capital has started seeping back into the industry buoyed by the success of sites like Flickr (bought by Yahoo! for $35m) and Google’s recent IPO. The current era has come to be popularly known as Web 2.0. The new landscape is littered with words like ‘community’, ‘value-add’, ’social networking’. All good stuff and making my life considerably easier but as the chatter grows around it are we heading for another bubble. Or as some would call it, Bubble 2.0.
What’s different?
Firstly, the language is different. Words like ‘experience’, ’sustainability’, ‘business case’, ‘efficiency’ and ‘profit’ are a lot more common. There is less talk of ‘eyeballs’ and more of ‘influence’.
Secondly, the approach to finance is different. Venture capitalists are naturally more cautious, expect much harder facts and invest much further along the product’s development. Most wait until they see profit or at least revenue. Furthermore, some companies are so capital efficient they have no need for venture capital.
Advances in technology are also creating a more stable environment. Costs have dropped and internet access is becoming more and more ubiquitous. People are much more used to the idea that the web can do lots of useful stuff. The dot-com era was if nothing else a fantastic marketing and education programme on the benefits of the internet… if a little expensive.
IPOs are a lot less popular. The new flavour of the month is to be snapped up by a large technology company, like Yahoo! or Google. IPOs are also less attractive with the advent of the Sarbanes-Oxley Act which imposes strict and costly corporate-governance requirements on listed companies (a similar act is expected in Europe soon).
The people involved are also different. Mike Rundle puts it beautifully:
While the dotcommers were making really cool stuff in the late 90s, younger people like me (middle school, high school) were idolizing them and aspiring to run dotcom companies once we got a bit older. Now that we are older (19-25 or so), and have witnessed the demise of the dotcom era, we’ve vowed to make even better dotcom companies that kick way more ass than our idols ever kicked.
However, it is still worth being cautious and care should be taken not to hype hype hype. Web 2.0 applications are appearing daily and even some of the best sites like Technorati and del.icio.us have still to produce any revenue. Even less are actually profitable.
It is often said the version 1.0 will always be full of bugs, version 2.0 attempts to paper over the cracks whilst version 3.0 is the first to balance stability and functionality. Success! Subsequent versions usually go down hill as they are overloaded with useless features, but that is another story..
In conclusion
I was one of those school kids in awe of dot-com companies but just slightly too young to dive in. I was gutted when the bubble burst but it was sorely needed. I think the industry has learnt a lot of important lessons which I believe will stabilise the future of the web, version 2.0 and beyond. I think it will continue to maintain its dynamism and vitality but I have no doubt mistakes will be made and money lost. If there is a bubble we won’t know until it is burst and I don’t think it will be for the same reasons as before. This rich mix of innovation, risk and passion makes it an exciting place to work and it is why I am off to think up my own web 2.0 killer app!
Finally, myth or reality? I think myth.
