The Real Web 2.0 Bubble

Rob Hof

John Battelle, riffing off a Paul Kedrosky post, puts his finger on the problem with the proliferation of Web 2.0 companies. A lot of folks insist it's mainly because there's no crush of flaky IPOs (or much of any IPOs). But as Battelle notes, the crush of startups is a problem--or more precisely, the lack of failures among most of them is the problem:

Something is off in our ecosystem - there's simply not enough failure out there right now. For an ecosystem to be truly healthy, bad ideas (or good ideas poorly executed) need to fail, so we can all learn from the failure, incorporate the lessons, and move on.

It's no secret that creating a company is even easier than in the first Web bubble. Part of the reason is that startups can draft off of Google's ad networks, bringing in enough money to stave off the need to merge or get bought or just shut down as they struggle to get beyond the early adopters. Yet I've wondered for some time how many companies the Google ecosystem can support. We're only talking about a few hundred million dollars in revenue a year, right? Not enough to make huge successes out of even a few companies.

I do wonder if Battelle's a bit early in his worries. Few of these companies have been around for more than two or three years, so it's a little early to expect many outright failures just yet. Either way, though, it sure seems like the result will be the same as in any other bubble: A lot of these companies will implode, get bought for a pittance, or just quietly fade away. After all, if it costs 30 times less to get from idea to startup launch, that's likely to mean something like 30 times more competition. It's just not sustainable. In other words, some things haven't changed all that much.

Not that that's all bad. Umair Haque correctly notes that this is the way revolutions work. It's just that there's going to be more carnage than too many folks think.

Before it's here, it's on the Bloomberg Terminal.