Overall, this is a pretty wussy article with two talking VC heads pointing out the evidence for and against of a Web 2.0 “bubble.”

Mr. Dagres (nay) comes up with this short list of why he thinks there’s a bubble:

1. Far too much money chasing Web 2.0 deals.
2. No barriers to entry in Web 2.0.
3. Very little liquidity in the market for Web 2.0.

Mr. Hornik counters:

1. Public markets are ill suited to evaluating such risks.
2. Because of the low startup cost, companies will be profitable sooner and have higher margins.
3. The internet is just getting started - spelling opportunity, not bubble.

Personally, I’m a bit confused by a few things. For one, many Web 2.0 startups are looking at acquisition as an exit strategy rather than an IPO. I’ve heard this justified elsewhere that this is a good thing, as public markets are more prone to bubbles; that they’re somehow not good at evaluating risk.

However, many of these Web 2.0 companies are relying on the “wisdom of crowds” for content, links, and ratings. So I guess the “wisdom of crowds” only applies to pop culture stuff - not the stock market in general?

I’m really thinking many of these companies would go public if they could, but they can’t, so they won’t, and that’s actually evidence of the market protecting itself from another nutty bubble. The higher barriers to an IPO today I see as proof that the public markets are doing a great job of evaluating risk - by keeping the really risky stuff out.

As for Mr. Dagres, I don’t really get how both 1 and 2 can work together. Why would there be so much money chasing Web 2.0 if there are no barriers to entry? I’m envisioning a bunch of old media guys at some big corporation, totally confused about Web 2.0 (and thinking they need to get in on it after reading articles like this), and therefore buying up some Web 2.0 companies because they can’t figure out how to build this relatively simple technology themselves. If that’s the case, then Web 2.0 has a long way to go, since corporate stupidity is in pretty huge supply these days.

So all in all, this article doesn’t answer any questions for me, but because of its mere existence, I see it as bubble-friendly. Expect Web 2.0 to hit the cover of Newsweek any day now.

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