John Cook, venture capital reporter for the Seattle Post Intelligencer, published an interesting post titled The end of the Web 2.0* bubble?
Cook tracks Seattle area layoffs, and notes that several Web 2.0 firms, including Jobster, have cut back recently, indicating we might be seeing the "beginning of the end of the current (Web 2.0) bubble." He also points to TechCrunch and its Web 2.0 "Dead Pool."
I question whether there can actually be a "Web 2.0" bubble. A bubble, as defined by investorwords.com, is:
"A description of rapidly rising equity prices, usually in a particular sector, that some investors feel is unfounded. The term is used because, like a bubble, the prices will reach a point at which they pop and collapse violently."
In other words you need equity for a bubble. According to Cook, TechCrunch estimates about $600 million was invested in Web 2.0 companies in 2006. I don't think the revenues and market caps of Web 2.0 companies are significant enough (yet) to be termed a bubble and therefore I am not sure there is a bubble to burst.
Cook also makes comparisons to a so-called "Web 1.0 bubble," an attempt at buzzword backward compatibility. Certainly no one ever called it the Web 1.0 bubble when it was happening and I'm not sure it's a legitimate term of art today.
The dot-com bubble, on the other hand, ran roughly from 1997 to its 2000 collapse, with the September 11, 2001 attacks driving a stake firmly into the heart of anything that was left. That bubble, despite its dot-com appellation, affected every sector, not just tech and certainly not just the web. And the cost of the end of that bubble was staggering. The collapse of Enron alone destroyed billion of dollars in market cap, left behind $31.8B in (mostly unrecoverable) debt, and put 21,000 people on the street. So while it’s hard to construct a statistically valid financial comparison between the dot-com crash and the current perceived shakeout in Web 2.0 companies, it is clear that there is no reasonable comparison of a Web 2.0 bubble and what happened seven years ago.
And sad as it would be, if every so-called Web 2.0 company disappeared off the face of the planet tonight at midnight, we'd have maybe Y2K-scale repercussions (remember what a tragedy that was going to be?), and nothing on the order of a global market crash.
Perhaps this is a semantical argument, but I do think we need to keep a sense of scale about this thing everyone calls Web 2.0.
* Web 2.0 or anything 2.0 is not a term I use willingly. Anyone who has read my previous blog knows of my disdain for the 2.0-ing of everything in the known world.
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