I’ve blogged for a long time that “busts” and “bubbles” relate to expectations in financial markets, and therefore, if there are few Web 2.0 companies in public markets, then it’s hard to make an argument that a classic bust can occur. However, Dave Winer makes a great observation that Google stock is the boat that floats Web 2.0. I guess one could argue that it is not necessarily the share price but the real revenue generated via Google that makes the Web 2.0 world go ’round or that Google is a sales agent for the websites, rather than vice-versa, but those a small points. Regarding the big picture, Dave’s point is correct: Google stock is a bell-weather for Web 2.0 — it’s the last e-bastion of exuberance that knows no rational limit. Its inflated valuation is what powers the spread-sheets of startup founders and many of the VCs who fund them. Even if you disagree with what Dave is saying, it’s definitely worth reading.
Speaking of a “Web 2.0 bust,” last week, I spent some time with a friend who is a wise and seasoned expert on the topic of bubbles and busts, as well as Web 2.0 investments. I asked him about how a “bust” could occur, despite my aforementioned theory. He immediately mentioned Google. But he also added a brief explanation about the problems that can occur because small investors now have the ability invest (and lose everything) in hedge funds. It’s a topic about which I know nothing so I apologize for not being able to explain why the ability to invest $10,000 in a hedge fund is a dangerous thing. But, at least according to the smartest guy on this topic I know personally, it is.