Dvorak – 2.0 bubble to burst for sure. ?

The normally perceptive John Dvorak may be showing signs of his “old computer” and “old media” roots by predicting that Web 2.0 will be collapsing for sure. He’s certainly correct that things *might* collapse but everybody knows this. New massive economies – be they the online economy or China’s exploding economy – are inherently somewhat unstable as they rapidly change and flex to meet new demands and bring in new ideas.

However I think John’s missing the fact that the online economy is now well established enough that although players – even big ones like Google – may fall or stumble it is very unlikely we’ll see the widespread systemic meltdown of the late 1990’s. The most important reason is that online advertising is more effective than offline advertising. Ads are the mother’s milk of online business. Google revenues, for example, are about 99% advertising. Can this market collapse? Unlikely unless because it’s delivering superior ROI to advertisers even as those advertisers continue to spend on less effective offline media, which is still the lion’s share of total ad spending.

In the 1990’s the PE ratios for companies were often off the charts, where now we see Yahoo, MS, and Google all well within the historic ranges for technology companies. The names may change but it’s very unlikely that the revenue base – advertising – will dry up anytime soon. Ergo, the web will continue to grow and evolve and continue to replace traditional media with …. better stuff.

Sorry John – time to write that screenplay?

Don Dodge has this right – Old media influence, not Web 2.0 media, is what John should be fretting about.

Caveat:   As I’ve noted before many times the new paradigm for Web 2.0 companies is an evolutionary model.   As with species we are going to see that most of the Web 2.0 companies will fail and die.  But this is NOT at all a ‘collapse’ because the system as a whole will continue to expand and thrive.    We are seeing high numbers of low capitalized companies  with VC funders of those few that get money simply hoping for a few winners.  This is, in some ways, analogous to the way nature kills off most gene mutations, leaving the most successful animals to thrive and be copied (aka reproduce).   This is not an old business model but it’s a perfectly reasonable one … unless you get killed by it in which case it’s still perfectly reasonable, you just won’t like it.