If Everyone Thinks It's a Bubble, It's Not a Bubble
Our Web 2.0 conference is prompting all sorts of people to declare that the Bubble-with-a-capital-B is back, Web 2.0 is over, and here we go again. The only problem with this is, if everyone agrees it's a bubble, then it isn't a bubble.
The conference does, as Om notes, remind me of conferences in earlier days, but the comparison for me is how many people are actively looking for investments, and are willing to make speculative investments based on cool tech instead of clear markets. It's a mistake, though, to say that the exuberance of 1999/2000 is back, or anywhere near it. That's the easy story, the thing we want not to happen again (given the scale of the wipeout when that bubble burst) and want to be able to warn against. The easy story assumes, though, that everyone here has already forgotten what happened so recently.
It's all they're talking about here, how much it feels like the old days, and all the things that could possibly mean. Bill Gurley had a great line about the 2000-era bubble, that "a mania isn't over until everyone believes in it." Here at Web 2.0, no one believes the mania, at least not yet. No one thinks, as they did in 1999, that we're looking at new technologies that will, say, wipe away bricks and mortar retailers and leave online businesses in their place. No one believes that old and powerful industries are about to be destroyed en masse by the rise of asynchronous Javascript or data as the Intel inside. These Web 2.0 markers are great developments, and are enabling great applications to get attention and immediately dominate the Web applications they replace. They've clearly valuable. As of yet, though, Web 2.0 is a revision of the Web and what has been built on it, not a revision of the world, which was the premise of the last bubble.
The excitement here is weird to see. It does make me wonder what's to come. But I think it's too early to declare a bubble, just because investors are excited again. Investors get excited professionally; bubbles require much more pervasive delusions.
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I wish I could agree, but when investment is this rabid and the promise of a 3 month start-to-exit strategy is such a prominent myth, it seems that everyone could agree that it's a bubble, yet still feel that they can beat it if they can just hurry the hell up and launch. And that's why market manias incline most steeply at their peaks.
Nevertheless, it sure does feel wiser and more fun than the first time around. Excellent insight about froth vs. bubble, Peter. If you don't have a payroll, only partners, would a big *pop* really hurt that badly? I don't care if the VCs are excited or not; I'll still wake up and get right to work. If we build companies to sustain themselves incrementally (ala 37 Signals), we can shrug off any concerns about irrational exuberance.
No one said it had to look like the last bubble for it to be a bubble, right? The new web won't wipe away bricks and mortar retailers. The old power industries won't be destroyed by AJAX or data as the Intel inside. We've learned some lessons, not all of them.
Web 2.0 is fun and exciting. Fun and exciting can only take you so far. I see few legit business models out there. I see some really cool tech innovations with little practical value. I see crowded spaces (consider social bookmarking), filled with lots of investments and little differentiation. I see the power players (Google, Yahoo!, eBay, and now AOL) trying to out do each other and spending big dollars to do it. Is it great news? Sure. Is it worth the money? Not so sure.
if everybody think its a bubble, it can be a bubble too. Investors only need to think they can ride the bubble and jump off at the right moment. This is a classic economic explanation for overheated markets
RolandK has a good point - even if people realize it's a bubble, they will still try to ride it. But I also agree that this is nothing like what we saw in 2000.
" Though the river's current never fails, the water passing, moment by moment, is never the same. Where the current pools, bubbles form on the surface, bursting and disappearing as others rise to replace them, none lasting long. In this world, people and their dwelling places are like that, always changing.
When you see the ridgepoles of the impressive houses in Heian-kyo competing to rise above one another--dwellings of people of high status or of low--they look like they might stand for generations, but when you inquire you discover there are very few still standing from ages past. Some may have burned down just last year, and been rebuilt since. Or a mansion may have disappeared, to be replaced by smaller houses. Things change in the lives of the people living in those houses, too. There may be just as many people, but in places where I might have known twenty or thirty people in my youth, I may only recognize one or two now. Some die in the morning; others are born in the evening. That's the way it is with the people of this world--they are like those bubbles floating on the water."
- Kamo no Chomei, Hojoki (An Account of My Hut)
Too many people got burned by Web 1.0 so any hint of innovation and real development is now labeled "a Bubble!" thats so bogus. People are too easily confusing excitment with bubble. and correct me if I am wrong but how does Google or Ebay paying bank for new small companies affect the average Joe involved in the last bubble? I mean the 1.0 bubble was too many day traders and wanna be VC's looking for their payday. In order for there to be a bubble people have to be betting huge on future appreciation (gee can we say Real Estate?) Web 2.0 feels like real innovation with a lot of bootstrapping and viable businesses with profit plans. What a concept.
Reading that Ruby on Rails lets you build apps 10x faster and that the "future" is Rails adds to the bubble-like feel.
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Peter Rip [10.06.05 04:59 PM]
Nat -- it doesn't feel like a bubble, but it does feel like sea foam.... lots of little, frothy bubbles. Lots of little companies with low costs of development (call it "entry"), most centered on a feature or two as the organizing principle. The feel is something like mix between hobbyists and build-to-flips, because the real exist most companies want is currency from the same 3-4 big dog Web companies. When they stop buying, the music stops.
Actually, it reminds me of 1981 when the cost of developing a sw product was a Pascal interpreter on an Apple II. By 1983, Distribution became the choke point and the flat distribution of software developers became a long tail distribution driven by channel access...