Today’s San Jose Mercury has a piece saying that the social software funding bubble has moved on to companies like SocialText, Jot, etc. I don’t entirely agree with the bubble comment, although I take their point. One difference, and not the only one between Friendster and newer social software outfits, is that people pay for the newer stuff. It is a big difference.
More broadly, journalists are over-eager to declare bubbles. There is a kind of social pressure to avoid the embarassment that comes with hyping something only to discover that some loser companies get funded. While that is a fine and understandable view from journalists, it is wrong-headed from an investment standpoint.
My view: Until a sector has at least a few companies being funded that shouldn’t be funded there is almost certainly not enough venture money allocated to the sector. In other words, not everything that looks like a bubble is one.