El Ruso

Why Web 2.0 just may be another bubble

May 19th, 2006

An article in NYT argues that this time it’s different, which as David Dodd once said are four most dangerous words in the English language:

Venture capitalists are also tending to show far more restraint before deciding to invest in a start-up — such impetuousness to be part of any deal perceived as hot helped to fuel the Internet mania of the late 1990’s.

Sure, the focus now is now on “users” not on “eyeballs” and there are no theglobe.com type IPOs, but current situation is still too close to the Last Great Bubble to be comfortable:

1. Industry still with low barriers to entry in most sectors (see YouTube vs. Google Video, MySpace vs. Friendster, Google vs. Yahoo, etc.) — maintaining competitive advantage is hard
2. Advertising once again is the king for most of the startups, with few notable exceptions (37signals’s applications come to mind)
3. Huge amount of press and buzz around hottest startups, Google especially (I still think its valuation is ridiculous by the way)

Entry Filed under: Web 2.0