Is 'Web 2.0' Another Bubble? 209
Carl Bialik from WSJ writes "Two tech VCs, Todd Dagres and David Hornik, debate whether there is a bubble in so-called Web 2.0 companies looking to cash in on a resurgent online ad market. In the WSJ.com debate, Hornik writes: 'Venture capitalists will rationally stop investing in ideas that don't bear fruit. Those that do bear fruit will gain traction and either be acquired or go public. Those are the traits of a rational market in my mind.' Dagres responds: 'I think the Web 2.0 space will have a higher mortality rate than other segments of the overall media and technology industries. There are far too many MySpace and YouTube genetically challenged clones. All but a few will fail. The winners are generally the ones that get in early and out before the bubble bursts. There are rare examples of bubble companies making it through the bust and going on to become successful and valuable companies. By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store.'"
Pretty much (Score:2, Interesting)
The new dot-com business are like donkeys chasing a carrot on a stick. They just keep on walking, never getting any closer to the carrot, but expending a lot of energy (money). They need some company to come along and give them the carrot.
I call this "The Paul Graham Business Plan".
Lacking knowledge of economics? (Score:0, Interesting)
As long as the USA provides services foreign countries need, the dollar will be strong. The dollar is weak because foreign countries which lack basic economic knowledge have not opened up to our products. And until everyone in the world has everything they need (a car, house, fridge etc) there is plenty of goods remaining to be provided. Right now, the world lacks the production capacity to make enough goods for everyone. It takes millions more workers than the US has to even supply it's own economy with all the goods and services people want (we now today have more cars and fridges per capita than ever before). Add to that computers, new drugs, and entertainment.
We have only a 5% unemployment rate, and that's with more women in the workforce than ever before. The number of hours worked to be able to afford a fridge has reduced a lot since the 1950's. Same with cars.
Right now, lack of cheap energy is holding the world back. The USA has the knowledge and workers to help countries that need cheap energy get it. For example, we could be building power plants in China. Disalination systems for irrigation in the middle east and african desert regions. automated harvest systems Etc. In exchange, we'll get cheap manufactured goods from there. If we do things right and advance automation capability (we'll need this because only poorer people/countries tend to have enough kids/workers to replace themselves), someday two hundred years from now people in America and worldwide will only have to work a few hours a day to be able to afford a decent lifestyle. And we'll be arguing how to increase the global population without forced child bearing.
Re:tagging beta: yes (Score:3, Interesting)
Try being a little cynical for a few minutes, and stay with me. The issue in this particular case was not how quickly the project could be done; in fact, there didn't appear to be much interest in creating a working project at all. The reason for this is simple: a project manager 4 years ago made a prediction about cost and timeline. There is also no possible way he could be wrong; the company committed to the cost and timeline when the prediction was made. And the project manager's MBA trumps my experience. It also turns out that this was a security project; cutting corners on such a project would be detrimental to the company. Again, we're not talking technical details. The actual security of the project is secondary to the appearance of security. The possible timeline of the project is secondary to what the project manager determines the timeline actually is.
It turns out that geeks can get rich in this scenario too. IMO, you'd have to be unethical to play along though. Effectively, you are being given money to delay the project or come up with reasons why it's infeasible in its current form. Personally, I prefer being given money to make technology work instead of making up stories. Of course, after a project has been managed this way for 4 years, you don't have to try very hard to find reasons that it's infeasible in it's current form. Unfortunately, only the project manager gets to decide when the project actually gets axed. Development on such a project is miserable; you get punished for writing good code. Maybe some people can put up with that, but I can't.
mandelbr0t
Re:Federal Reserve HEY MODERATORS! (Score:4, Interesting)
I'm sorry, but this should be modded +5 insightfull, not -1 offtopic. The fed printed up a bunch of money, used it to buy US bonds (to finance the war in Iraq), and now people are supprised that the price of every commodity across the board has doubbled in the last 5 years. Well, hint hint, they haven't - in "real" terms it's the dollar that's gone down in value far more than the commodities that have gone up. The only problem is that they loaned out so much freaking money that now society is saturated in more debt than it can pay back. By any standard, the US is bankrupt.
Well, guess what. They only have one choice: "print up money and buy stocks" and that's exactly what they've been doing. But it will fail for the same reason that any central planned economy fails, and it will be very very ugly. Forget stocks, people should buy gold and prepare for the US dollar not to be a currency anymore. It really is that bad.
Re:Figures dont lie... (Score:3, Interesting)
You see: CASHFLOW is the incomings and outgoings on a day-to-day basis. If you have healthy cashflow, well, you can live on a small margin; you merely push product. This is why the Wal-Marts crushed the K-Marts, and the Best Buys crushed all the local electronics chains that once existed back in the 80s (like Crazy Eddies). Cashflow is a good initial predictor of the future health of a business. Since this is a commodity model we are all following, healthy cashflow means you can constantly freshen and upgrade and moreover bargain for your next deliverables. In the end, cashflow is vital. If cashflow chokes, commodity models self-destruct. This too is why Wall Street is wary of Wal-Mart's recent rumblings about retail; and again, why all those 80s electronics chains folded dramatically and everywhere at the end of the decade.
Furthermore, cashflow is most heavily influenced by direct receipts collected by a company. Lack of cashflow suggests a potentially imperilled business model. And to be frank, I remember online advertising being the end-all and be-all for most sites by mid-2000. Advertising, however is cyclical: companies advertise if consumers are spending and pull back if they are not.
In the end, sites like those are never receiving much cash from their consumers; most of their users are "free" users. This is okay for a collosus like MySpace; they will inevitably monetize it, but if not, so what? With Fox as corporate parent, they are essentially an advertising subsidiary anyway: just one in the new media arena. Just as you don't pay for your Fox affiliates programming, you don't pay for MySpace's programming.
What these sites face without deep pockets is a sudden implosion once cashflow becomes the slightest bit restricted. This was the failure of the Web 1.0 companies. Many of these new ones are not as free-spending but have only marginally more secure business models. Yes, Technorati, I'm looking at you and your refrigerator salesman.
Re:There is no such thing as Web 2.0 (Score:3, Interesting)
It means a combination of server and specialized client software. World of Warcraft, for example. Or, possibly, P2P programs like Freenet, BitTorrent or Gnutella; after all, a single Gnutella servent is completely worthless, it is only when you have several communicating with each other that the network becomes useful. Or even the Internet itself - the network as a whole is certainly distinct from any single server or router, and can't really be said to reside in any one of them.
Mind you, this concept is anything but new; in fact it applies to all social constructs too, and in fact to anything that has more than one part.
Re:Federal Reserve HEY MODERATORS! (Score:3, Interesting)
How? By having the de facto international currency. Take a handful of dollars and you'll see that they are accepted as legal tender pretty much everywhere on the globe. Yes, even in countries like Iraq or North Korea. For the simple reason that those countries need Dollars for international trade, too.
Pretty much every country on this planet has Dollar reserves. The price of internationally traded goods is given in USD, and more often than not paid in USD too.
This allows the US government to effectively "tax" other countries. An inflation in the USD has actually very little consequence for the stability of the USD, simply because many countries have to follow it, because their stock in USD becomes less valuable, too. If another currency had been printed in the amount the USD has been in recent years, the only thing left to do would have been to devalue it because the inflation would have been running rampart.
The USD, though, only lost very slightly towards many currencies, and even there only towards currencies that are not tied to it altogether. Currencies of countries that hold almost all their foreign reserves in USD have been "stable" towards the USD. We're talking here a loss of about 20% towards the Euro or Yen, when effectively it "should" have lost closer to 70%.
What keeps the USD afloat is the fact that it is the guiding currency in international trade.