Web 2.0 Boom is Okay: Wrong
Josh Quittner is wrong in his Time magazine hymn to all thing Web 2.0. Far from being different from the prior dot-com boom, this boom is achingly similar in many ways, with the main difference being that it is cheaper this time to get yourself in just as deep -- and this time there is no IPO market to bail you out.Sure, while Quittner's right that no-one can name any Web 2.0 IPOs, that's not the same as they don't know anything about the liquidity providers/sources. They can name the main buyer -- Google -- and they can name its largest acquisition -- YouTube. And that is a reminder why this is so perilous: Web 2.0 is an even more concentrated boom, one that centers on only a few names on the liquidity provider side, rather than the wide-open affair we saw back in 1999.
Liquidity aside, Josh then goes on to repeat a favorite myth about Web 2.0, the one that says profits are key. Bullshit. Josh tries to make the point, but then he backpedals to eyeballs (shades of Web 1.0), and then makes up a factoid about how "sugar daddies" will only buy profitable Web 2.0 companies. Really? Okay, name one. Not Jot, YouTube, Flickr, etc. etc. None of these high-profile buys were
profitable when purchased.
So, is this bubble different, as Quittner suggests? Only if by different you mean "riskier". Because the main difference between Web 2.0 and Web 1.0 is that we have higher risks with lower payoffs. It is the concentration of risk, the narrowness of the exits, the low cost of market entry, and the ephemeral nature of consumer markets that makes this a more perilous time.
Sorry Josh. Like most times when someone says "this time it's different" about capital markets, the only thing truly different is the person saying it.
[obDisclosure: I like Josh, and even briefly wrote a column for the Quittner-edited Business 2.0.] 1
