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The Real Web 2.0 Bubble

Posted by: Rob Hof on August 21, 2006

John Battelle, riffing off a Paul Kedrosky post, puts his finger on the problem with the proliferation of Web 2.0 companies. A lot of folks insist it’s not a bubble mainly because there’s no crush of flaky IPOs (or much of any IPOs). But as Battelle notes, the crush of startups is a problem—or more precisely, the lack of failures among most of them is the problem:

Something is off in our ecosystem - there’s simply not enough failure out there right now. For an ecosystem to be truly healthy, bad ideas (or good ideas poorly executed) need to fail, so we can all learn from the failure, incorporate the lessons, and move on.

It’s no secret that creating a company is even easier than in the first Web bubble. Part of the reason is that startups can draft off of Google’s ad networks, bringing in enough money to stave off the need to merge or get bought or just shut down as they struggle to get beyond the early adopters. Yet I’ve wondered for some time how many companies the Google ecosystem can support. We’re only talking about a few hundred million dollars in revenue a year, right? Not enough to make huge successes out of even a few companies.

I do wonder if Battelle’s a bit early in his worries. Few of these companies have been around for more than two or three years, so it’s a little early to expect many outright failures just yet. Either way, though, it sure seems like the result will be the same as in any other bubble: A lot of these companies will implode, get bought for a pittance, or just quietly fade away. After all, if it costs 30 times less to get from idea to startup launch, that’s likely to mean something like 30 times more competition. It’s just not sustainable. In other words, some things haven’t changed all that much.

Not that that’s all bad. Umair Haque correctly notes that this is the way revolutions work. It’s just that there’s going to be more carnage than too many folks think.

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Reader Comments

davis freeberg

August 21, 2006 11:45 PM

I don't buy into the concept that more web 2.0 companies mean more failure. If a company can get by on $500,000 a year in revenue, then I think that's great. I think if anything the concept of success that was prevalent in the first bubble has changed. It's no longer about the .com millions but rather building a good reliable business model. Some will definitely fail, but I don't think that we can look at the Internet as a zero-sum game, when all that it has proven to be has been a new revenue source for startups and existing businesses alike.

Oliver Widder

August 22, 2006 06:45 PM

We're still in the weird phase.
The wake-up phase is yet to come.
I made a small cartoon:


Andy Brudtkuhl

August 23, 2006 10:56 AM

It's inevitable that many of these companies will fail. But, for many of these companies, the only overhead is a one-time development cost and hosting. And from what I have seen in the trenches the cost of development by many of these companies is simply time - working at night after their full time jobs.

And hosting is cheap, cheap, cheap these days, especially if your web app is text based (ie Delicious).

Companies in this 'bubble' can far outlast their predecessors because their bottom line is so low and can be funded by Google advertising.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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