I didn’t use the “B” word: Despite pointing out similarities and differences between today and 1999, I have not used the phrase Bubble 2.0 to describe anything related to today. While I’m quick to ridicule the “designed to get VC money” strategies of some start-ups, I am not in the “this is a bubble economy” school.
I believe in the current 1999 2.0 environment, the folks who lose money will have the “risk profile” to absorb those loses. For example, who cares if AOL overpays for Weblogs, Inc. (and I’m not suggesting they are or are not)? If AOL overpays, it’s less than a rounding error for Time-Warner and besides, Time Warner stockholders are conditioned for pain. (Note: I’m not currently a stockholder.)
We are not now in a blog-related or Web 2.0 or whatever else you want to call it financial bubble. We may be in a idea (some brillant, some goofy) bubble. We may be in an enthusiasm bubble. But we’re not, at least not yet, in a financial bubble.
How do I know this isn’t a financial bubble? Unless I’m mistaken, CNBC is not yet devoting a big portion of its broadcast day to hype something called Web 2.0 stocks. Unless I’m mistaken, people don’t even watch CNBC like they do in a bubble.
How do I know? Correct me if I’m wrong, but the amount reportedly being paid for the essential blog-traffic infrastructure found at weblogs.com is, roughly, equivalent to what one would expect to pay for a decent bungalow within a one-mile radius of Stanford University. Not exactly irrational exuberance.
How do I know? It’s hard to have a bubble if VCs think the “exit strategy” of 1999 2.0 is for their investment companies to be acquired or angel investors to want their investment companies to be acqhired. Certainly, there will be overpayments made for acquisitions and folks with great ideas will get rich — or fail — but widows and orphans won’t be able to speculate in (and create bubbles and busts) until the IPO market flood gates open for companies with no revenues, profits or hope-for-either. And that, I don’t believe, is going to happen again any time in my life time. (But if it does, those who lose money will be forewarned.)
How do I know? Well, this time around, the marketplace will be more like Hollywood. The “small is big” model where great and dumb ideas by groups of independent business and creative types will gather momentum and attract money and then will be taken to the marketplace where they will quickly succeed or fail (i.e., picked up by the “big studios” of Yahoo, Google, AOL or Microsoft).
There will be big hits and indie cult classics that appeal to a small but dedicated audiences. There will be flops and bombs. But “success” won’t be about creating a new movie studio, but about creating a series of modest hits and, if lucky, one or two oscar-winners during ones career.