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Ok I have had it!  Ever since the Web2.0 Summit in San Francisco California on the 7^th-9^th of November all I have been reading is posts and articles about how the “Web 2.0 Bubble” is going to burst.  From Blog Posts, to columns and even the New York Times and Forbes have all run articles and commentary about a coming Web2.0 bubble bust and how we are right back in 1999 all over again. 

My response to all these people is, will you please shut the hell up and go back to discussing things you know at least a little bit about?   Seriously just shut up!  You all have no idea what you are talking about because there is no bubble to burst in the first place.

Let me be clear my claim is not that most the Web2.0 startups will succeed but that if they don’t that no one is really going to care.  My point is whether startups like Squidoo, Technorati or Bebo make it or not won’t really matter to the average consumer, the Dow Jones average or the general U.S. economy. Or to put it in bluntly the term "Web 2.0 Bubble” is a farce made up by bored journalists with nothing else meaningful to write about.

To understand my claim first you must understand the two primary causes of the original “Dot Com Bust” in the first place.  They were…

1.  The huge number of people that were employed at the time by the tech companies that were part of the bubble.  When these people lost their jobs they all flooded the market looking for tech jobs while the technology industry was slumping and the companies that did survive were cutting staff not expanding.  So the issue was a lot more then a company failing to make money.  The real problem was that combined these companies employed millions of employees who were all let go right about the same time into a declining job market.

2.  Public investments (stock and mutual funds) were highly leveraged into tech companies that were riding the Dot Com bubble.  Dot Com companies brought in millions of dollars in public money via stock offerings and never turned a profit either before or after their IPOs.  You see the “bust”  was not when the companies lost money it was when the millions of investors who bet their retirement on these companies lost money.

So how does the current state of affairs compare to 1999?

Simply put the start up of today is not the start up of 1999.  In 1999 a start up company consisted of tens or even hundreds of millions of dollars in venture capital and generally employed somewhere in the neighborhood of one hundred or more employees (some employed thousands).  Before these companies made a dime of profit they wooed high dollar talent with big salaries and massive stock options and ran up huge expenses on everything from trade shows to software packages to office space. 

Today a start up may still have a big chunk of venture capital attached to it but start-ups tend to be 2-10 person operations running on a very controlled budget.  Many don’t even have any real venture capital attached to them and are run on true shoestring budgets by a founder who still is working a day job and outsourcing some of the programming and development to contractors.  So if 10 companies fail today a few dozen people go looking for work in 1999 when 10 companies failed tens of thousands of out of work applicants flooded the job market. 

As for public investments (stock and mutual funds) that were highly leveraged into tech companies that were riding the dot com bubble.  Today you can’t directly invest in any new start up Web2.0 company that I know of.  The closest you could get is to invest in Google who owns YouTube but Google has so much capital in reserve there was once talk of turning the company into a mutual fund!  I guess you could buy Yahoo and get a piece of Wikipedia or Del.icio.us but while Yahoo is not making the money Google is they are still measuring profit in hundreds of millions of dollars per quarter. 

Simply put the Dot Com bust was in large part because the general public was highly invested in Tech Companies tied to the Internet boom. Today when a Web 2.0 company goes under it has little to any effect on your 401K plan, the Dow Jones Average or anything really relevant to the average American.

Conclusion

Sure some day if the public forgets all about 1999 and these Web2.0 companies start doing IPOs and the public rushes in again we could have another bubble to worry about.  If these companies take all the money and start hiring thousands of new people taking them away from relatively secure jobs for more money and the chance at hitting it big in the options game, we could all find ourselves back in 1999 all over again.  Then if thousands of small businesses start providing services to them and become entangled in the web of a false boom, indeed it could really be 1999 all over again.

Yet nothing like that is occurring today.  If the typical Web2.0 company fails less then half a dozen people are out of work and odds are the skills they have are currently in demand by at least a few good employers.   On the other side your 401K plan and the Dow Jones average are simply not effected long term by the success or failure of start-ups like Squidoo, Digg or Diigo.  No we won’t have a Web2.0 bust because there is no bubble in the first place.

Today we have a different reality some of the new start-ups will make it big and some won’t but failures will cost the venture capitalist and the small entrepreneur both of whom are willing and able to take the risk.  To all the people writing about a coming Web2.0 bust my message to you is find a new buzz phrase this one simply shows the depth of your ignorance about the entire subject.

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