Is The Web Headed For Meltdown 2.0?

by Stephen Wellman

In recent months I’ve seen a lot of anxiety in the tech marketplace. Bloggers, pundits, and industry insiders all seem to suggest that Web 2.0 is headed for Correction 2.0. Are we in the middle of another bubble?

The bubble talk started in 2005 when eBay agreed to acquire Skype. Since then, we’ve learned that Skype hasn’t earned its high price tag, with co-founder Niklas Zennstrom even admitting as much.

In recent weeks GPS firm Navteq sold for an impressive $8.1 billion to Nokia while Google’s stock price continues to climb. And to top it all off, last week Microsoft invested $240 million in Facebook in a deal that supposedly gives the golden child of Web 2.0 a market value of $15 billion.

Web skeptics point to these trends and, channeling Susan Powter, scream: Stop the insanity!

During the fallout from the dot-com era, there was a lot of finger pointing and loads of general animosity directed at the Internet. But during the down years that followed, the Web exploded while the skeptics entrenched in their old-line companies watched from the sidelines. Google grew up during a down market. Key Web trends, like blogging, also exploded during the downturn.

I had firsthand experience with this. I worked at a Web startup during the downturn. When I would reveal this fact at the time, people would look at me with equal parts scorn and pity. I once had someone blame me for the stock market crash because I worked at an e-tailer during the late 1990s.

What I find odd about this Web skepticism is that it points a lot of derision at the Web. Other industries that have downturns don’t attract this much animosity. I don’t see any financial analysts out there pointing fingers at real estate agents or condo builders for the current meltdown in the U.S. real estate market.

Let’s look at the ghost in the room. Everyone is scared that the Web will repeat the mistakes of the dot-com era. Well, how about all those dot-coms that flamed out seven years ago? For all the Pets.com buzzards of yesteryear, there are plenty of dot-com era companies still charging on. Web giants such as Amazon.com and eBay have proven themselves as viable, profitable global businesses. And even though Yahoo lost to Google, it’s still around and it’s still a going concern.

A few business analysts last year pointed out that the survival rate of dot-com era companies was “on par or higher than other emerging industries” and that there may have been far too few dot-com startups, contrary to the conventional wisdom that emerged at the time of the collapse.

If you factor in that the dot-com era produced a large number of viable businesses in an era where many of these companies ran on little to no profit — if not outright losses — for years, today’s crop of Web 2.0 startups looks even stronger. Even Facebook, a site that earns special scorn from Web skeptics, is profitable. Yahoo at the same time period in the dot-com explosion didn’t look as strong financially as many of the bright, shining stars of Web 2.0.

Simply put, I just don’t think that the current class of Web startups looks anywhere near as dangerous as those from the late 1990s. And given that startups today are smaller, leaner, and actually profitable, they may do even better than their parents’ generation. And if the parents did well (much better in hindsight than most thought in 2000-2001), how much success could these Web 2.0 kids achieve?

Now, does this mean that I think Facebook is really worth $15 billion right now? Not necessarily. Does this mean that I don’t think there will be another Web downturn? Not at all. That which goes up must come down. That’s just capitalism. If you don’t like the risk, then don’t play for the rewards.

What do you think? Is Web 2.0 headed for a huge crash? Or is the Web only heating up?

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2 Responses to Is The Web Headed For Meltdown 2.0?

  1. […] You can read the rest of this blog post by going to the original source, here […]

  2. […] Jay – The Phoenix Real Estate Guy wrote an interesting post today onHere’s a quick excerptI don’t see any financial analysts out there pointing fingers at real estate agents or condo builders for the current meltdown in the US real estate market. Let’s look at the ghost in the room. Everyone is scared that the Web will … […]

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