Web 2.0: Boom or Bubble?

By Mark Evans
Contribuing Writer, RealTechNews

Chris Anderson has a thought-provoking story in Wired arguing the technology sector’s revival is a boom, not a bubble - citing the industry’s maturity, the lower cost of bandwidth and and computing, and lower capital requirements. It’s a reasonable argument but I would suggest no one in Silicon Valley should pat themselves on the back too heartily for being so pragmatic and/or rational this time around. While it may not be a bubble, there are plenty of signs a bubble be closer than many people think. A regular check with TechCrunch and SiliconBeat, for example, offers a steady stream of news about cool start-ups with questionable business plans (Does AdSense count as a business plan?) raising several million dollars. Sure, many of these start-ups are lean and mean operations that require little capital to develop a service and distribute it, but if the path to becoming a viable business is still very much work in progress. As a result, I would argue many VCs are speculating on these start-up investments even if these services have thousands of enthusiastic users. This sounds a lot what I heard during the dot-com boom. If more VCs jump into Web 2.0 with more enthusiasm and dollars, then the whole speculation argument begins to gain credibility. I do concede, however, that one thing that does make the current high-tech revival different from the dot-com boom is the absence of IPO fever. There just isn’t the enthusiasm for high-tech IPOs - look at the muted reception Traffic.com received recently and Vonage’s oh-so-slow IPO plans. This environment can only be viewed as an extremely encouraging check on the boom becoming a bubble. As long as this situation exists, you will keep unsophisticated investors and taxi drivers from catching a bad case of Web 2.0 fever. So what does it all mean? I would argue Anderson’s thesis is right for the time being but there are very few barriers (more VC activity, Nasdaq gaining strength, successful IPOs) between a boom and a bubble so let’s not get too carried away with the idea everyone learned so much during the last dot-com boom that there is no way it could happen again.

For more thoughts about Web 2.0 and other tech trends, check out my blog.