Are we Headed for Dotbomb or Dotboom 2.0?

With the most recent mergers, share prices, and acquisitions, lots of people have been talking about a Bubble 2.0. History does tend to repeat itself. Is this what we are seeing?

If you recall the first time around, the technology sector and internet in particular was flooded with cash and confidence. People were even talking about it being a new economy. Funnily enough, the same things were said before the great depression.

This abundance mentality was fueled by sky-high share prices, IPO-based exit strategies and “business plan, what business plan?” confidence tricks. Are we seeing the same things now?

First time around they either had no business plan or at best “sell eyeballs and advertising“. Valuations were therefore based on membership counts and ability to sell banners.

Funny how the ones who sold actual products at a profit are still around. Even though many had doubts about Amazon, if you asked around most people actually bought from them. Yes it took a while to make a profit but while other companies were buying superbowl advertising, they were investing in infrastructure. I’m sure you will agree, that paid off.

Web 1.0 was like the wild west. The rules were not there so there were no rules to be broken. Now we know there needs to be a business plan and sensible spending … right?

The darling of the tech stock pundit right now is probably Google. The Big G has tentacles in all sorts of markets but the valuation is based on their continuing ability to suck advertising dollars from all parts of the marketplace. It almost happened by mistake, Adwords was not a top-down strategic masterstroke but a lower level employees copy of Overture. Implementation made all the difference, and because it worked so well there is more to Google now than some super smart kids with a super smart search engine.

While they Google manage to find otherwise unreachable advertising dollars they will continue to prosper. Sounds good until you realize Adwords is the only place they make real money, and the Adwords empire can not make this sort of growth indefinitely. If the biggest and brightest has an uncertain future, what about the rest?

Facebook is up there with Google in terms of press attention and recruiting power, but not so much with the income. In fact it seems while there are one or two cunning developers making money off Facebook, they are the only ones. Billion dollar valuations aside, it seems to me the emperor has no clothes. Yet again we have “high eyeballs-based valuation first, think about making money later“. Their business plan? Advertising. Again.

So on the one hand we have exuberance, on the other we have VCs shrinking away from playing the gamble and Web2.0 companies using Web1.0 strategies (or lack of). Where are we headed?

Look at the worlds leading economies and you will see there are some troubled times ahead of us. The USA real estate bubble pop, the sub prime problems, tanking value of the dollar, all add up to some painful financial ripples. In a recession consumers pull their belts tighter, causing retailers to do the same. This cascades all through the market. Those Web2.0 properties monetized by “premium brand banners” are going to be chasing a smaller and smaller advertisement fund.

While this seems like a pessimistic view, I am optimistic surprisingly!

There are companies out there now using the internet to market real products to real customers. The web is not going away, it is now part of peoples lives.

My daughter was born into a world where the internet was taken for granted. When she wants to watch the latest pop videos she turns to YouTube, not MTV.

This says to me that whatever happens, there is still a lot more business to be done online, we just have to learn the lessons of the past.

Posted on November 22, 2007 by Chris Garrett 
Filed Under Web 2.0

Comments

5 Responses to “Are we Headed for Dotbomb or Dotboom 2.0?”

  1. Brian Hogg on November 22nd, 2007 8:54 pm

    I’m headed to dotBoom 2.0, but that’s just because I’m making a second season of my show. :)

  2. Chris Garrett on November 22nd, 2007 11:47 pm

    Cool show Brian, plus I am a sucker for anything with a .ca domain ;)

  3. Brian Hogg on November 23rd, 2007 8:14 am

    Thanks!

  4. Aaron Stroud on November 24th, 2007 8:41 am

    Chris, my vote would be for a Dotboom 2.0. There are always a lot of things to be pessimistic about; that never changes.

    However, the current excessive, over-valuations are generally limited to a handful of companies. Individual investors might get burnt. Everyone saving for retirement via mutual funds might see a few percentage points slip away. It probably wouldn’t kick off a stock market correction.

    Of course, economic predictions aren’t worth the bits they’re written with.

  5. Chris Garrett on November 27th, 2007 1:30 pm

    I hope it will be boom Aaron :)

Leave a Reply