Bubble 2.0

You went to a great party, had too good of a time, woke up with a terrible hangover, and promised yourself you wouldn’t do that again.

Then the people who threw the party invite you to the next one.

What do you do?  Go, of course.

I wonder if that’s what’s happening with all the activity in and around Web 2.0 right now.

Money is being made all over the Internet these days.  Some of it by good old fashioned revenues and cash flow.  That’s the foundation for the recovery in Internet investing we’ve been enjoying for the past couple years.

But increasingly money is being made the way we made it from 1998 to early 2000; mometum investing, speculation, fast money chasing deals, caution being thrown to the wind, and amateurs jumping in on the action.

It’s hard to say no to a good party.  I am struggling with the temptations myself.

Because some of the Web 2.0 stuff is very real.  The Internet is being transformed by lightweight and highly compatible web services, a quickly developing architecture of participation, business models that rely on efficient lead generation, a very low cost of entry, and an equally low cost of scaling.  Many Web 2.0-based businesses can have huge operating margins.

But for every good opportunity, there are twenty copycats and hundreds of bad ideas. In the bubble 2.0 market we are now in, these copycats and bad ideas get funded.  And they create all sorts of problems.

I don’t have any good answers to these problems, but I’ll say this:

If you were at the first party, then you should never forget how it felt when it was over. 

Drink responsibly this time.