BUSINESS BLOGS
BUSINESS BLOGS
category: business
03 Dec 2006
related tags: Uncategorized | Internet & Web |

Many inside and outsiders (i.e those who work on the Web or simply write about it) have started to talk about the Web experiencing a sort of Bubble 2.0. 

They point to things like Google’s stock crossing $500 as a sign.  Of course, that just means that they do not quite grasp the basic principles of stock splits (before and after an IPO) and the fact that most companies would have IPOd at a price of $25 (for example) and not $100, causing the 400% spike in Google’s price look suspicious.

For the record, we’re not bandwagon jumping Google fans: it’s a great company, fantastic stock but its got plenty of risks and investors are paying a premium for it.  It made our Top 10 Stocks of All Time, but even though we think it could surpass MSFT in market cap, we doubt it, and surely don’t think it’s the world’s first trillion dollar market cap company.

But back to the point: we’re not in a bubble (though we are seeing pockets of bubbles) for the simple reason that at least some things are different:

Back in the late 1990s and early 2000, VC money was funding the advertising and IT investments because the Nasdaq crossing 5,000 was a sign that the payoffs for VCs would justify the investments.  When the Nasdaq popped and the dot come bubble burst, VC dried up immediately, meaning that investments in IT and ads ceased as well.

The reason was that online businesses in turn did not see a need to advertise and boost audiences anymore because there was not much in the way of online ad dollars.

After the burst, CPC ads took off and advertising began to offer some kind of ROI.  Today, we might see a slowdown in CPC rates but demand is strong enough that if one advertiser stops to bid on a keyword, there are more than enough willing to step in and replace said advertiser.

Why?  Because there are far more people online today than back then, broadband reaches over 50% of homes, and online ads are a $15B ad industry…

Of course, as I write this, writing Nasdaq popped after 5,000 could become Google popped after $500, but even then, if buyouts from Google and company did not materialize, even without the lush exit strategy, a business could be built online.  That being said, nothing would make me happier to see half of the nonsense wannebe Web 2.0 feature/applications trying to pass off as companies disappear.