We are not in a bubble…yet

September 29, 2006 — 1 Comment

Jason Calacanis writes that we are now in a full blown bubble, bubble 2.0 if you like. Far be it for me to not agree with this, after all I’m fairly well known for my general skepticism on well…just about everything, but in this case I don’t concur. Sure, we have bubble like activity, but it’s more like a storm, lots of froth that makes lots of little bubbles, but I still don’t think fundamentaly that, at least investment wise, we are looking at a tech bubble in the same way we did in the late 90s.

Firstly, saying we’re in a bubble because Podshow took $15 million in second round funding is like saying that global warming is upon us because New Orleans was hit by Hurricane Katrina. The single act doesn’t prove the overall proposition, although it may be indicative of things to come.

Secondly, as much as my natural inclination is to think that $15 million going into PodShow is sheer and utter lunacy, I don’t know anything about PodShows current revenues, their business plan(s) or even what they are intending on doing with this money. Neither does Jason Calacanis. One would presume that the second round investors into Podshow have been sold on something…that something has not been disclosed.

Last: there’s still a fundamental difference between Bubble 1.0 and the in theory Bubble 2.0, and that’s what is being delivered. The money flooding into tech in the 90’s was pure speculation: unproven technical ideas, unproven market potential…and generally into firms that hadn’t made it to market yet, and as a consequence had never ever made income..let alone a profit. Todays funding, although some of it (but only a small amount) is going into pure speculative plays, is primarily going into firms with proven products and/ or marketplaces. Sure, I personally don’t see a massive return for all the players in podcasting, but we know that 1. Podcasting works 2. that millions are already listening to podcasts and 3. That the market for podcasts continues to grow. The same holds true for a whole slew of other Web 2.0 plays: we know these ideas work, because in the whole most Web 2.0 companies aren’t actually creating new ideas or new marketplaces, they are actually looking a bettering existing ideas and/ or marketplaces. Short story: the fundamentals are totally different this time.

Big grain of salt now: people are going to get burned investing in Web 2.0. But so do people investing in any marketplace. I can remember reading that something like 85% of all small businesses in Australia fail within 5 years of launch. Here’s my bet, I think the figure will be lower than that in Web 2.0. Having said that, 50% is not an unreasonable presumption, and that’s still a lot of lost money..but it’s better odds than a whole pile of other things in life.

Food for thought.

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