There Is Definitely A Web 2.0 Bubble Going On

October 16, 2007

Web 2.0 Bubble

This is it. The definitive sign of a bubble. I’m calling a top right here.

Check out this article in the International Herald Tribune about a Web 2.0 bubble in Silicon Valley evoking a sense of “deja-vu”. The story starts off with an anecdote about Right Media, a startup that was recently acquired by Yahoo! for 800 million.

Go ahead and read the whole article, if you want, social networking, Facebook, yada yada yada.

Now check out the caption beneath the very first photograph:

Right Media, co-founded by Brian O’Kelley, was valued at $200 billion when Yahoo invested in 2006. Six months later, it was worth $850 million when Yahoo bought it.

Read that again. See the typo? Valued at $200 billion and then worth less when it was bought?

I’m sorry – but I had to read this caption twice before I realized the mistake. But truth be told – on top of the fact that the company quadrupled in price in less than six months – and everything else in the article – and how mainstream news only picks up on bubbles when they’re about to burst – for the typo of $200 billion vs. $200 million to slip through the copy editor’s eye implies valuations are truly insane.… to where something as ludriculous as $200 billion doesn’t seem glaringly wrong.

Here are some other choice quotes to chew on:

“There’s definitely a lot of betting going on, and it’s not rational,” said Tim O’Reilly, a technology conference promoter and book publisher… when the bubble inevitably pops, he said, “there are going to be a lot of people out of work again.”

“We are almost going back to year 2000-types of errors,” said Aaron Kessler of Piper Jaffray. Internet companies, he added, “are buying users instead of revenue and profitability.”

Bubble. I’m through with the “is there… or isn’t there?” debates. I believe it’s right here, right now. The only question is what, if anything, do we do about it. End of line, look out below, sell, sell, sell.

Update: Turns out this article was a New York Times one that just went live this morning. Valleywag is linking to the Herald Tribune version, with nary a mention of the typo – which is still freaking there.

Comments

  1. Dave says:

    I dunno, I don’t think there’s much that can be done quite frankly.

    One of the big problems, imho, is that you have a lot of large companies (incl. traditional media or more mature, but slow-moving tech outfits). These companies have deep pockets but are (often) clueless about where to tread next when it comes to “new” media. Fear + money are a dangerous combination.

    I figure for my little company, the best we can do is to make sure that while we develop the site, we develop our ability to monetize the site. I think a lot of startups ignore this aspect of their business. Maybe not a mistake for companies like Facebook and YouTube who hit “grand slams”. But for the rest of us, it makes sense to stay lean, limber and profitable. I think that’s the most that any small startup can do to keep itself upright in the event that the bottom falls out from the market.

    I don’t think it will (at least not yet), but there have definitely been some crazy acquisitions of late. But like I said, I think the fundamental difference is that in 1999 it was internet companies buying other internet companies with “funny money” obtained from the crazy stock market valuations. Today it’s big media going on the buying spree, often in all or mostly cash offers.

  2. webomatica says:

    I’d agree there’s little an individual can do to stop the continued bubble inflation as a whole, but much can be done on a personal level – to batten down the hatches and consider the implications of an economic slow down.

    The bootstrappers and Craigslists will endure – it’s the Facebook is worth $100 billion that is getting out of control.

    I sort of feel the source of the money doesn’t make it any smarter. the stock valuations the first time around were insane in hindsight. But who’s to say that the millions in cash coming from old media won’t be similarly demonstrated to be a waste?

    Over the past year I’ve been wondering if there is a bubble, and I suddenly felt spurred to call a top just now – as soon as the bubble talk starts appearing in the mainstream media. But based on my amateur prognostication track record – I seem to be about six months premature. I was whining about the housing bubble during September of last year. So if I have any credibility, there’s about six months to ride the wave :)

  3. engtech says:

    Don’t develop a product that can be done by a kid in his basement.

  4. Dave says:

    My point wasn’t that the old media money is smarter (it obviously isn’t)…my only point was that it’s “real” *cash* as opposed to stock transactions (“funny money”).

    But the net result is probably similar.

  5. tunequest says:

    More evidence of bubbleocity: songs about bubbles.

  6. webomatica says:

    Hmmm and that’s not a link to Don Ho either.

    Seriously that video is pretty sweet. Definitely some “in” jokes for example the LOLcat that is used on Twitter for errors.