Why The Web Face Its Second Burst?
This posting is actually corresponding with Daniel Nerezov’s and Matthew Abate’s comments on my previous post about bubble burst 2.0. They gave me a valuable info about how the first bubble burst (by that, I mean dotcom crash) took place and why. Unlike me, they don’t believe that we are facing another bubble burst.
Based on the previous dotcom crash, the bubble will only burst if there’s a significant amount of VC backed IPO, while on web 2.0, we don’t see enough VC backed IPO that can lead to a market crash. This however, if we set aside the facts that there are quite a few VC bold enough to invest a substantial ammount of their money on a web-based start-up business such as Digg.
IMHO, investing on a business without a clear business model to generate growth in terms of value and profit is one path that will lead to another burst (web 2.0 burst, hence bubble burst 2.0). On my example regarding digg, I believe that they will grow big in terms of value not in the distant future, but profit growth? Still doubtful (I don’t have enough collection of data to pin down their business and growth model).
Financially speaking, web 2.0 burst might not take the same way as the first dotcom bubble burst because the business field is outright different. On the first bubble burst, we see NASDAQ stock index increased sky high and drawing people’s investment onto high-tech start-ups. Unfortunately those companies are using growth-to-sell-out strategy which means that they are trying as hard as they can to increase the value of company and launch it on a blitzy IPO.
Of course, this is by any means necessary without having a solid business growth plan. The classic examples that they teach on marketing books about this is garden.com that attracts millions of dollars of investment prior to its IPO and crashed not long after that.
We are seeing the very same pattern as that. While Google is growing and growing each day by creating new features and services for its users, their whole business is based on a single source of income, advertisements. And in my opinion, as an industry pioneer (and web 2.0 pioneer), the business model is not viable because of the free rider problem that I have explained on the previous post.
Why it’s not viable? Simply because the new marketing trends (well… it’s not trends actually, it’s where marketing is heading), that advertising is (almost) dead. And that’s where Google (and any other Web 2.0 companies) are going if they still based their business mainly on advertising.
Every single web 2.0 company (or the one that claim themselves as such) should find a new business models that fits the future playing fields and that’s absolutely doesn’t lie on advertisement business.
And to add to that NASDAQ comparation between 1999 and 2005, we must remember that most of the web 2.0 company is not on IPO yet (I think it’s only Google and Yahoo - the long time player) and is not publicly traded. So there’s still a window of opportunity for the NASDAQ sky high performance to happen, thus creating a bubble, and leads to another crash (all other bubble - such as housing bubble - aside).
And based on that logic (and some publicly known fact, I’ll do more research onto this when I have the time), I strongly believe that if we continue on supporting web 2.0 company without a viable business model, we are facing the next bubble burst.
I hope this simple entry will spark more discussion about this interesting topic :)
