Ian Landsman is Starting From Scratch, November 29, 2006:
Dave on the Bubble Burst
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Dave has an interesting piece on the web 2.0 bubble bursting and how to determine that since for the most part these companies are not public. His theory is that when the Google stock bursts that’s how we’ll know.
It’s an interesting theory, but I think his analysis is off. First, how many web 2.0 sites are there really? Let’s say it’s 10,000 which seems too high but that’s fine. Google has it’s ads on millions of sites. Second, Google is already a profitable company which is something the web 1.0 public companies never were. That’s a huge difference. It makes it extremely unlikely that you’ll have an instant collapse like 1.0.
Unlike 1.0 not only is Google profitable, but it’s growing at a very high rate. Wall st. loves stocks that have a high growth rate and as long as that continues the stock will continue to climb. Web 2.0 sites have very little effect on the overall volume of search traffic at Google which is still where the vast majority of growth and revenue come from.
Discussion
What is it about Dave's post that you disagree with?
Created by George W. Bush on 11.29.2006 2:29 pm
I don't think there's a correlation between a web 2.0 burst and Google's stock price. I think web 2.0 can "bust" and Google's stock can still stay high. Hence I don't think it's a good barometer of if web 2.0 is or is not a bust.
Created by Ian on 11.29.2006 3:58 pm
The only thing is that stock prices often have little to do with real fundamentals or revenue. I could see a string of high profile web 2.0 failure stories affecting Google's stock in a big way. The first bubble didn't necessarily crash because of financials as much as the media "turning" on it. The media propped up the hype in the first place, once that goes, so do the investing dollars.
I think it may actually work the other way around from what he proposes. I think it's more likely a Google stock tank would kill web 2.0. Since web 2.0's profits are based on AdSense, and dreams of buyouts from companies like Google, if Google's stock plummeted, it would be less likely they'd buy companies out, and AdSense payouts may shrink, which would have a cascading effect.
Created by Phil on 11.29.2006 5:48 pm
Actually though the first bubble did crash because of financials. The media did build it up but if those companies had been profitable they would still be in business. They weren't so they aren't.
I don't think a Google stock tank would necessarily kill 2.0 unless the tank is based on declining revenues. If it's just because it falls out of favor then all the adsense people would still be making the same money.
I just don't see a big correlation between Googles stock and web 2.0.
Created by Ian on 11.29.2006 5:51 pm
Ian - good post and I agree with you. It also made me think again about two questions: what does "web 2.0" mean and are we in a web 2.0 bubble?
What would a web 2.0 bust look like? What are the symptoms? For the dot-com bust it was tons of investment dollars and many jobs lost. What happens when a web 2.0 bubble bursts? Are we even in one?
Sorry to through a bunch of questions and no answers. I'd love folks' thoughts on this.
Created by Scott Meade on 11.29.2006 7:44 pm