The startup ranks are starting to thin. We’ve added three companies to the TechCrunch DeadPool in the last week (Raw Sugar, FilmLoop and Browster). Even Google got into the spirit of things when they shut down Google Answers at the end of the year. And over on the Forum users are asking “Who’s Next?”
It’s clear that new venture fundings are still out pacing DeadPool admissions by a large multiple - it looks like $600 million or so was invested in Web 2.0 startups in 2006. And since most startups fail, I expect this commenter may be correct when he says “I predict 2007 will be the year of the deadpool.”
But this doesn’t mean we’re in a bubble. In fact, I think the exact opposite. I think a few failures are direct evidence that we are not in a bubble and that the private venture markets are actually in the process of letting off a little steam to keep things rational.
The Web 1.0 Implosion
Web 1.0 effectively ended on Friday, April 14, 2000, when the Nasdaq lost about 10% of its total value. Between March 10 and April 17, 2000, the Nasdaq lost over 37% of its all time high of 5,133 (and it fell far further later on). The Nasdaq was practically an index of Web 1.0 companies v. the “old economy” NYSE, and it got hammered.
One of the biggest issues driving the collapse was a failure by companies to drive earnings enough to keep up with stock prices. Many public companies had three-digit P/E ratios at the time of the crash. By contrast, the P/E ratios for Google, Yahoo and Microsoft today are 62, 35 and 24, respectively.
The Web 2.0 Reality
Today, the IPO door is nearly shut for Internet companies. GoDaddy withdrew it’s registration statement in August 2005 before going public. NetSuite is next up - we’ll see if they can make it happen in the next couple of fiscal quarters.
There are probably two reasons for the IPO drought. First, there are very difficult reporting requirements now in place that weren’t around in 2000. It takes a lot of administrative overhead to be a public company today. Second, and more important, the public markets have factored in what they learned the last time around and they just won’t let companies go public on the vague promise of future revenues and profitability. Once bitten, twice shy.
That leaves the acquisition market as the only viable source of a liquidity event for most startups. And while there have been a handful of high profile Web 2.0 acquisitions (YouTube, MySpace, etc.), entrepreneurs and venture capitalists have significantly lowered expectations compared to their state of mind in 1998-2000.
Bubble!
But even in this new reality, we’re seeing what looks like way too much money chasing too few good ideas. And when someone does have a good idea, all of the principles of Web 2.0 work to destroy competitive barriers companies try to put in place to protect their business (See Todd Dagres of Spark Capital make this argument recently in the Wall Street Journal).
So when we see a few companies fall, people run for the hills.
But I disagree that Web 2.0 companies cannot become sustainable businesses. The Network Effect is still the most powerful force driving Internet success today. People don’t, for example, go to Digg because it has great software. The original Digg, as launched, cost Kevin Rose less than $2,000 to create. Anyone can create a Digg clone, and many have. The reason Digg is, and will continue to be, successful is because of the community it has created. People go to Digg because everyone else goes to Digg, and every new user who submits stories and/or votes occasionally adds value to the whole network. The Network Effect is also driving Facebook’s success, and YouTube’s. None of these companies have interesting software. All of them have an incredibly valuable community. All of these companies have to work hard to keep their lead, but it is nearly impossible for new entrants to catch up.
And I also disagree that too much money is chasing too few good ideas. We’re seeing a lot of $3 - $8 million Series A round experiments, but not nearly as many follow on offerings. Remember that VC’s business models are designed to fail most of the time - the majority of their investments are expected to go belly up, and they hope that just one or two out of ten have a big return. VCs place a bet, and if it fails they move their money and attention elsewhere. And the entrepreneurs move along to their next thing as well. Assets are allocated efficiently, and everything works out fine in the aggregate.
Letting Off The Steam
2006 may have been a sign that things were getting a little overheated. One long term problem with VCs is that if they get locked out of a hot deal, they fund a competitor. The result is three or four funded startups for every good idea, and they have to fight it out until one hits critical mass and the Network Effect kicks in. This seems to be playing out with the market niche of online slide shows - Slide, FilmLoop, RockYou and Photobucket all have similar products and all are funded. FilmLoop is in trouble, and the other three will continue on fighting.
So there are too many review sites (Yelp, Insider Pages, Riffs, Judy’s Book). And too many Q&A sites (Yahoo Answers, Live.com Q&A, Yedda, Answerbag, Askville, etc.). And too many customizable home pages (Netvibes, Pageflakes, Google, Live.com). And so on. Most of these will fail. Some will win. Hopefully, the total return on investment to the winners will be greater than the sum of all investments in all of the startups. If that ends up being the case, we all win.
As these companies fail, the markets take note. This lets off steam and settles things down. Venture capitalists are less frothy. Fewer investments are made. Valuations go down. Things equalize.
In Web 1.0 companies didn’t fail (until the crash). They just raised more money, at a higher valuation, and gave it another shot. That isn’t happening today. VCs are letting their startups die, as they should. Things aren’t as exciting as they were in 1999, but it’s a whole lot saner.
So every time a startup dies, I don’t think it’s evidence of a bubble about to burst. I think it’s evidence of a market that is working exactly as it should. Most companies fail, but enough win to keep the whole ecosystem healthy.
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bubble, bubble, bubble. interesting post.
Thanks Trey. I was hoping for just that kind of insightful, interesting comment from our readers.
My only caution is related to monetarisation of “free” services through advertising; Adblock Plus is a recommended Firefox extension, and I haven’t seen many online advertisements on months.
Sure, I’m an alpha adopter, sure most people aren’t using Firefox, sure there are smarter ways for advertisers to overcome these tools users adopt to avoid advertisements (think about pop-up blockers and how much they drove the adoption of toolbars from the major portals).
I agree with Mike on the above issues of capital and the differences to 1.0; I just wonder whether the revenue expectations of many, based on advertising income and monetising eyeballs that way, will work out in the longer term… but then, if I’m wrong, I wouldn’t mind everyone else online funding my free news, online services and the rest thanks to them clicking on the odd advert.
A couple of interesting points you have made Mikee
1) the likes of digg cost little more than 2K to kick off
2) most of the current wave of startups are nowhere near being profitable
3) the copycat effect, jealously driving markets
While conditions are different from .bomb they are significantly similar in many ways too.
1) non profitable businesses
2) over confidence (shown by the gross indifferences between likes)
Anyway: You do not have to replicate exactly the conditions of one banger to set off the another.
The results are coming in, in real terms actions speak louder than words.
Survival is likely only for those that haven’t been over-inflated.
Are the fatties going on a crash diet?
Back in the late 90s, the ‘bubble’ was almost a necessity. It cost so much to get startups going as the technology costs were sky-high. Building a server farm to serve just a few million visitors per month was expensive, as was the bandwidth. Nowadays even renting dedicated servers for $500 per month can satisfy many startups. Kevin Burton’s TailRank is a good example of this.
Nowadays we seem to have a two-tier system that didn’t exist in the 1990s. As well as the VC-backed companies, there’s an even larger number of bootstrapped or small angel funded companies who are actually turning revenue. The growth is slower, but it’s more realistic. A lot of people thank the first bubble for this, but I’d say technology developments and costs have had the biggest impact.
So, bubble, bubble, toil and trouble? Nah, I agree with Mike. We need to see some failures so that the blood can keep pumping around this industry. Some failures from Google would be nice too, even, since they don’t seem to be innovating much lately and they have the biggest collection of brains trapped in ‘golden handcuffs’ outside of Microsoft.
@Geoff McQueen
I don’t think that the ad-blcokers are much of a problem. At least not for the sites showing advertisement since:
- people that block advertisement are not the type that would click ads anyways –> nothing lost (except a lower eCPM).
- the ad-business will always adopt. And even if you block everything that doesn’t originate from the domain that the site you are viewing is on there still is the option of hosting the ads on the domain. Installation of server sided scripts is easily done. (I think text-link-ads does exactly that).
What amazes me is that Geoff Mcqueen should have to “wonder” about monetizing ad revenue as a revenue contributor after all this time. How come it is not included as a scalable factor in a standard business plan/forecasting package with best case/worst case/most likely options etc. - so we all don’t have to beat our brains out reinventing the wheel each time? If it was also a calculation subset acceptable to funding sources as an industry standard, they would probably support it too?
There are lots of differences between the big bubble and the current situation. There is no doubt that more sanity is here.
But, A P/E of 62 for Google is high. Google is Web 2ish and trendy. As long as the Google stock has the same P/E, I don’t think that we can definitely declare that there is no bubble.
Secondly, job markets, at least in Israel and in the UK are steam hot. Internet programmers are hard to find, their salaries are increasing and being an Internet programmer isn’t considered lame anymore.
How is the job market in the valley?
Could not agree more with your analysis. We covered extensively the subject in TechCrunch France in the past
Very interesting insight which really makes sense. Thanks
Why do professional investors even matter? They generally only invest in proven ideas or copy-cats of proven ideas. And they’ll never stop investing in proven ideas.
What is so interesting and exciting about the web today, to me, is that sites like MySpace and YouTube can influence the entire world’s culture overnight and _anyone_ has a shot at making the next one from their apartment with some friends.
Now that web technology/infrastructure is mature and the web is so mainstream great things are going to keep coming regardless of what professional investors do. Hackers are driving this revolution, investors are following and begging for a piece of the action.
Congratulations on your article.It’s nice to see some reason on this sometimes over excited market.
On a higher level capitalism is about cycles. The only difference now is that highs and lows are getting closer due to the fact that entrepreneurship is easy and can be done at a very low cost. On the other side money is available and regulation makes it easy to invest.
So a bubble will happen again for sure and as you said it Michael, winners will emerge, like it always happened in the past.
One more thing: people have a short memory. I bet that if non profitable companies go public the same way they went public in 2000, investors will follow with no second thoughts.
Great article, Mike. I’m glad you posted this because it’s frustrating to keep seeing all of the “OMG Bubble!” knee-jerk comments on any post that mentions a startup in trouble.
On the other hand it doesn’t really hurt anyone if the uninformed-enough-to-worry crowd stays out of the startup business. I don’t mind people shouting bubble if it keeps the number of new startups down to a reasonable level, instead of everyone and their grandmother jumping into the water (which, thanks to lowered cost of entry is actually feasible right now).
You are rigth, in this situation for one who lose there is one who win, and the winner wake money for both.
It seems to me that successful startups will make a few entrepreneurs rich but little else will change with Web 2.0.
The big fish (Google, Yahoo, My Space/Rupert Murdoch, Microsoft) will sweep in and buy out a great idea, then try to monetize it by charging subscription fees or having ads.
The business world is changing - 30 years ago we bought most goods/services from firms that compete in monopolistic competition. Now with all the industry consolidation, we buy most goods/services from oligopolists. The Internet - if you look out 10-20 years - will have a high concentration ratio as well as a relatively high Herfindahl-Hirschman Index.
Everyone else can cry bubble, bubble, bubble. But it is the same geeks, innovators & shakers from Web 1.0 figured out things and started what we now fondly call web 2.0.
If it crashes, does it matter? The smart folks will create web 3.0 or another revolution. And the rest of us will just be scratching our heads and wonder what happened (again). The same way, web 2.0 caught some of us by surprise.
The geeks shall inherit the earth? Yup.
Besides starting up isn’t as outrageously expensive like before. digg.com for less than 2k. way cool
We should see start-ups everyday. Yes, we do. It’s news on Techcrunch.
The big difference between the Dot Com Bubble and Web 2.0 is who gets hurt when the bubble bursts. During the Dot Com Bubble many of the companies went IPO and small investors bought the stock. That crash hurt millions of small investors.
Web 2.0 companies are not public. It is the professional VCs who get hurt when these companies fail. As you pointed out, the VCs expect failures and moderate their investments accordingly.
The other difference is that Web 2.0 companies are MUCH cheaper to finance and build. So the failures are much smaller. Again, the VCs invest rational amounts, and pull the plug when they see it isn’t going to work.
I also agree that failures are a good sign that the market is working as it should. Back in the bubble days failures went public or raised more VC money.
I wrote a blog on this subject three weeks ago. See http://dondodge.typepad.com/th.....0_is_.html
Don Dodge
Overall I agree with the statements above. I believe that 2007 will be the year of startup mergers. Currently there are too many services which more or less cover the same clients. I also see too many Web 2.0 products that are great, but I cannot see a way how the companies will monetize them.
Mike’s analysis makes sense, as far as it goes, but it contains a couple unstated assumptions, doesn’t it? I buy the Network Effect argument, but it assumes that eyeballs equal revenue — and underneath that assumption is another one that revenue comes from ads. It doesn’t seem to me that the bottom will fall out of web advertising anytime very soon, and lots of entreprenuers and investors will make money while it holds up. That will be enough for gamblers who think in 18-month chunks. I’m just not sure about the sustainability of the ad market longer term, and I think the smartest startups with wider fields of vision will be experimenting with other ways to earn their keep.
“Again, the VCs invest rational amounts, and pull the plug when they see it isn’t going to work.”
How do you figure 5.8 mil for a Browster and 8mil for FilmLoop is rational? These very same services can be created for less than a mil. What do they spend the rest on? Chairs, parties, expensive offices in Menlo Park, San Fran, and other expensive areas. This is irrational.
The VC’s arent the only ones getting hurt. Their money could have been used on an innovative start up outside of the valley where they buy used office equipment, pay $800/mo for an office lease, and have one party when they launch. These people are the ones that lose out.
I’d love to see the expenses from some of these companies that have burned through $5M in a year. I understand that for a hardware company, but there is no reason a Web/software company needs that much. Are the execs taking full market salaries? Is there an attractive office with full amenities, receptionist, etc? How many people go to conferences and where do they stay?
I’m not taking a salary in my start-up for the first year, and it will take me 3 years to get to my market rate. I’ll make my money if and when we cash out. We don’t have an office. Everyone works from home and comes over to my house for meetings. On the other hand, our coders earn full market salaries, and have fully paid medical insurance. Coders should be treated well, but when execs get the same salaries, offices, and travel budgets as they did when they were at Yahoo or Microsoft, you have a serious problem.
I agree! the Deadpool will grow but so will real VC investments. Bubble, Bubble is right. The products can’t just be an add-on. It has to have depth and functionality. Alot of these 2.0 products people can live without. Community is still a good concept as to the fact that the Web needs to be regionalized somehow to make for better use. But community with a purpose. Students for example are just starting to scratch the surface of the Web for use in school and the classroom. Open access info is the deal. Publishers will figure that out. Right now schools are paying between $2 and $3 dollars a download for research content. That number needs to be amortized down to cents in order for it to make sense. Checkout our site and see what I mean. http://www.theCampusCenter.com
Web 2.0 - at some time there has to be a dramatic series of events to signal the arrival of web 3.0 - what will this be?
Eyeballs don’t equal revenue. Revenue equals revenue. If you’ve got a store and tons of people walk through, but don’t buy anything then you’re not going to be successful. While I agree that expectations are lowered from the last bubble, and that were probably not in a true bubble. A correction must take place and it will start with Google. Google trades at 15 times sales and ten times book value. There will be a 20-40% correction in the value of Google and this will ripple throughout the web2.0 landscape as many of these sites rely on revenue from Adsense.
I think there is something fundamentally different this time around. In the bubble, there were a lot of naive ideas that came about because of the world’s inexperience with the Net. (Guy Kawasaki’s example of selling dog food online comes to mind.)
Now, we have of very good ideas supported by strong communities, like you mentioned. I like to think that these Web 2.0 successes stand on the shoulders of those giant Web 1.0 failures. We’ve learned from our mistakes. It’s only natural.
Good post. I have my concerns as well about banner and contextual advertising based sites. While it is possible to turn a profit with this model, it’s not necessarily a revenue-centric model. These sites focus on generating content so users come and click on the ads. These models don’t necessarily focus on getting the ad revenue because they need to focus on getting the network effect going. I think what’s key here is a sustainable revenue focused goal. For example look at Shopping.com, Bizrate, and Pricegrabber. All are very successful Web 1.0 survivors because they focus on sales. It’s much easier to get the network effect going in a non-sales environment, but it’s much more sustainable to get the network effect going in a sales based environment.
Call me old fashioned, but I like companies that use revenue models other than advertising (although, I’m not against ad-based-businesses!). Some examples of “web 2.0″ companies doing just that are 37Signals, Etsy, Edgeio, etc..
Personally, I like to see companies attempting to become profitable, rather than just daydreaming about a buyout. While there is nothing wrong with a buyout, I just feel that there are way too many “services” (i.e. web-based IM clients) being funded.
I said 2007, was going to be the year of the deadpool before this commenter. http://www.techcrunch.com/2007.....ent-671155
Great post Mike, couldn’t agree more.
But Dan Broughton asks “Web 2.0 - at some time there has to be a dramatic series of events to signal the arrival of web 3.0 - what will this be?”
Dramatic or not, a change will occur before too long because we’ve reached the point where Web 2.0 companies mostly just perpetuate more Web 2.0 companies. Before too long the layers are too deep for all to make sense and everyone to make money because everyone is competing for the same group of users.
Most Web 2.0 companies solve Web related problems for people who live on the Web. The next generation of Web applications will use the Web to solve more practical problems for people who are too busy living in the real world (moms, contractors, real estate agents, teachers, coaches, etc) to spend time with trivial Web apps.
These people will never be heavy blog readers, they won’t take the time to set up Pageflakes and they’ll never join MySpace. They’ll be lured to the Web when there are simple to use applications that perform tasks for them more easily and less expensively than the tools they currently use in the real world.
Attracting new Web users who aren’t as determined to get everything free and don’t mind a little advertising to keep the price low, will keep the investment dollars flowing, the advertising dollars growing and could help to avoid a “dramatic” event as we move beyond Web 2.0.
Is this Web 3.0? I don’t know, but the evolution seems inevitable.
“Call me old fashioned, but I like companies that use revenue models other than advertising”
You’re not old fashioned, you’re reasonable.
Out of thousands of industries and millions of companies, there are just a few that can actually function with advertising as their primary source of revenue.
Most industries and companies put a price on their wares and ask customers to pay for the value those products and services provide.
Restaurants, contractors, car makers, book sellers, electronics companies, clothiers, insurance companies, lawyers, doctors, consultants, designers, architects, software companies, all do it this way. Look around your house, your work, wherever you are — you likely paid for the majority of things you have and use every day. You give me your product and I’ll give you my money. It’s a model people have been used to for a thousand years.
Only a few industries generate their primary revenue streams from advertising. Network TV, newspapers, magazines, some internet sites, and maybe a few others. These are industries require enormous scale to make advertising work. It’s not impossible, of course, but the odds are against you. Using advertising as a revenue source may also create a disconnect between the people that pay for the service and the people that use the service.
When the customers are the payers there is a stronger desire to keep those people happy. When the payers are advertisers you don’t need to keep the customers as happy since the customers aren’t paying the bills. Of course you ultimately have to keep the customers happy or there will be no audience to advertise to, but the connection isn’t as strong as when the customers and the payers are the same.
At the end of the day you can make anything work if your offering is compelling and valuable enough, but personally I think you stand a better chance of long-term success if you put a price on something. When you put a price on your product you’re saying “This is worth paying for.”
Any way you do it, have a successful 2007.
Stay small, stay agile, don’t overspend… sometimes the little guys come out ahead, and because of it turn into the big guys.
If $600 million is the number for 2006, it would be reasonable that in aggregate those 150 investments could be worth $1.5 billion in 2010, providing a 25% annualized return to the venture industry (2% above the most recent 10 year compounded period). i.e. one youtube.
I agree that there are far too many of some services - but also a little competition can be a good thing. We all saw what happened when Internet Explorer was the only browser (okay, there were others) and how much having Mozilla Firefox come onto the scene helped things.
Why such hatred for the ad model? It just seems hip to attack this model without giving much thought.
While the ad-based model may not get much points for innovation, it’s a proven one that works IF thought out properly - just like any other model.
Sure the payout not be earth shattering, but the ad-based model allows companies to concentrate on building a better product without thinking too much about pricing, packages and billing–all the dirty work involved when you charge folks for a service.
To #26: your anology is faulty when you say “If you’ve got a store and tons of people walk through, but don’t buy anything then you’re not going to be successful.” The product in ad-based sites IS the content. Fact that people are VISITING the site means they’re “buying” the content - for which the content-maker is paid indirectly by the advertiser.
Just another perspective.
-Zaid
Great post. However, I still feel a lot of startups have unrealistic valuations without a decent business model, which, to me, is a sign of a bubble. Companies like YouTube and Digg, successful due to the Network Effect are successful because they are free, and they could never charge for their products. And as they try to stick in intrusive ads, users just may switch to a free clone. Consumers are becoming increasingly adapt in avoiding advertising, and its effect and hence revenue is diminishing.
Product comparison engines and even google are different beasts - they answer shopping related queries, which have value. As advertising gets more targeted and integrated into the consumption process it will look more like affiliate lead generation. And I’m not sure that users of YouTube or MySpace are going to be buying much…
Excellent article. Another factor that may contribute to more steam coming off is the heightened probability of a recession in 2007. The “recession warning signs” keep multiplying: The yield curve has been inverted for many months, retail sales are not rosy, durables disappointing, overall business capex appears to have peaked, inventory-to-sales ratios rising, production cuts, price cuts, expense cuts to follow, with advertising being one of the first to get chopped, just like last time, just like every time. Not to mention the housing speculators and their lenders taking it on the chin more and more. Now I’m sounding like a doom and gloomer, which I’m actually not. I guess I’m just making the point that 2007 should be a very interesting year, with a lot of countervailing waves interacting. All the while, I expect the never-ending cycle of birth, life and death to continue. Cheers!
-Chris Founder,
BuzzPal - The World Is Your Party
http://www.buzzpal.com
Most Web 2.0 concepts are just “toys for the geek boys”. We play with them for a little bit, they are neat to kick around, then we throw them into our toy boxes to never be seen. 90% of what people need from the internet is merely to be amused. Just saying…
Web 2.0 is played out already. Really, let’s all move on. We’ve got YouTube now, some shaky and buggy online office wannabe tools, nice gmail, del.icio.us, and a couple more somewhat-useful web apps.
All the rest are USELESS and only contribute to a nationwide Attention-Deficit Disorder epidemic. Let’s go back to work and stop refreshing user-generated content sites all day long…
Ritalin 2.0…
What bubble? A Rain Bubble? We’re going ahead of time.
I’d like to see the burn rates on these companies that are flaming out too. Most of the start-ups I know are not buying $84sq.ft. office space in Palo Alto nor hiring huge teams / throwing big parties, but rather are boasting about ~how~ virtual they are, how much they’re off-shoring, how low their overheard is, etc. Saving money. In fact the VCs are expecting this.
Unless they’re blowing it on advertising? Google AdWords (nefarious bids for tops on the word “video”??)
Amber - I agree! It’s like we have to have 500 start-ups before we end up with 5 that have any business model usefulness/lasting power.
RqTect
January 6th, 2007 at 7:10 am
Bubble…, what Bubble?
The key to WEB 2.0 is to stay a small one man shop.
Grow slow get Bigger everyday then Sale.
This was my post from yesterday.
Thanks Mike
I would have called this article Bubble 2.0
Again How to make money at Web 2.0 is you have to:
Stay Small but Think Big
Look Rich and have NO Debt
Do not take on VC Money or Partners.
Design and Build a strong foundation Like any good Architect (RqTect)
Sale that company move on a build a new company.
Why is Google Answers even being mentioned in the same paragraph as FilmLoop, Browster, and Raw Sugar. Totally unrelated. Also, does the shutdown of Answers really have anything to do with a bubble (at least as you perceive it)? I mean, when you’re google, you just throw a bunch of stuff at the wall and see what sticks. Answers was one that didn’t stick. Big deal… You’re conflating the issues here.
The bit about “too many type X companies” is funny, for me. The list includes yahoo answers (I was there at Yahoo while they built & launched the product) Answerbag (worked for InfoSearch Media before they bought Answerbag - Steve Lazuka probably got the idea to acquire them in part because of a hobby site I was running while I worked there), and Amazon / Yedda, etc.
The reason the portals are all launching competing Q&A services following Yahoo’s massive success is that it’s all about search engine user behavior. Follow the research, as I have, and you’ll understand why these services are incredible…once they hit critical mass.
Take a look at Yedda or Answerbag though. Answerbag has been sold twice, and all the 3rd party metrics reports say that their numbers are flat, and have been for a while. The GUI has been refreshed, but their ideas have gone nowhere.
Yedda is in a similar situation as Answerbag - have you noticed they don’t disclose how many people they have using the site? The *small* site I help manage generates more than a thousand subscribers a month & we don’t do any real marketing.
Watch for them to run out of money, fast. If our site could sustain the three part time people that manage it on a full time basis, then you’d know there is a business model there even at the small scale. Trouble is, there isn’t, unless you have a premium service. Yedda’s monetization has to be much lower than ours on a per pageview basis, which means they make in the realm of $30 per day, at the very best, and that number is flat.
Answerbag, on the other hand, is making around $1,000 per day at best, and that’s *AFTER* they degraded the user experience to put their Adsense ads even more in the users faces…note the lack of premium service integration on their site - that says they must be far short of the 20 million Google pageviews that they require to get that integration.
Watch for 90+% of the Q&A services to bite the dust next year if they took any money at all, as the investor’s wake up hung over.
I like the post and agree with most of it. The reason the IPO market does not exist for so-called “web 2.0″ companies is because people do not want to buy companies (stock) that do not make profits. It’s pretty simple.
Create a “web 2.0″ company that actually makes money and creates added value for stock holders and guess what - the markets will welcome you with open arms.
Interesting stat: Online advertising spending in 2006 was $16 Billion. That is double the amount spent in the Bubble-tastic year 2000 of $8 Billion. In 2006 online advertising also outpaced magazine advertising for the first time ever.
That being said, I remember an advisor to a startup I was working on in 1999 telling us that we could not support an online business on advertising alone. But with technology/labor markets so cheap now, with advertising spend growing so fast, why couldn’t you do that just like newspapers and magazines have done for the last 100 years or so? True you wont have an “IPO-mega-millionaire-by-25-years-old” type company, but you will have a viable business.
Remarquable post, michael.
When VCs lets their startups fails and move on to the next “big” thing, it shows maturity. This is called evolution and thats how the market should behave.
I feel safer, knowing that people arent funding blindly and feed the bubble until it explode.
So, we are calling VC’s smart after they choose to get out? This is like saying the captain of the Titanic was smart for jumping off the ship after he already hit the iceberg (Just follow the logic as if it were true, I believe the captain of the Titanic went down with the ship).
I would call a VC “mature” when they spend their investors’ money more wisely (not on slideshows) on the front-end.
I wouldn’t say bubble I would say great time to invest. http://cgi.ebay.com/ws/eBayISA.....amp;ih=009
I agree that more and more companies are copying each other. The web 2.0 for me was a dissappointment. i would like to see some kind of website that would help people everyday,something earth shattering. Social networking and media is a big bussines but its just for fun. Why could anyone make somthing that would benefit us all?