Bubble on the Brain
If you listen to Dvorak and Marshall this morning, the pissing contest over if Web 2.0 is going to implode or not implode is part of this morning’s breakfast news. It is entertaining, in a shallow sort of way on the Dvorak side, it is at least presented well on the Marshall side of the argument. We are leaning a lot towards the idea that even though Web 2.0 might implode because too many companies chasing too few people is something that we are all dealing with. Niches in social networking have proven to be successful; the problem comes in when there are 40 different social networking sites that cover the topic of termites eat wood.
The argument is over the concept of web 2.0 collapsing in a firestorm of layoffs, companies closing, and bread lines in the valley. It might, that is not the real argument, the idea that we are in a highly creative time period, where new technology is evolving into standards (even if you hate myspace or not, it is the standard for a social networking site, even if you hate digg or reddit, they are the standard for a social news voting site, etc). Even if you abhor the technology, the web sites, and think that everyone can do better, here is why it will not be as bad as in 1999/2000.
VC Money and M&A, with most of the smaller companies going for a buy out rather than getting more VC money, companies with deep pockets like Microsoft, Google, Oracle, Yahoo, and others will assume the exposure of a total blow out. They all survived one downturn; they might just survive a second one when/if it happens. If Microsoft wants to pay 6 billion for a company great, they can afford it, if Google wants to pay 1.65 billion for a company, great they can also afford it. If or when there is a contraction in computing, the absolute value of those companies might go down, but they are not going anywhere or going out of business any time soon. With the perception that only the desperate take VC money, and the dearth of IPO’s, the damage will be limited to larger companies that did all the M&A activity, not mom and pop on the street like it was in 1999/2000.
Should the IPO market change, then the above statement is well worth reevaluating and looking at the bigger picture again.
The ability to or desire to be part of web 2.0 is at about 8% of the population that actively make stuff, according to the Pew Internet Survey this year. That leaves 92% of folks availbel to contribute but don’t for one reason for another. Once they get over what ever reason they have, if they start contributing, then we will see more stuff on the internet, more places for ads, more places for comments, and more niches opening up. This is good and bad, the inventory for available space on web sites for advertising is already huge, with more being added daily.
This is good for ad buyers, and sellers. Everyone gets more tailored ads to the niche they occupy, meaning that maybe more than ½ of 1% of people will actually click on the ad. The stats on ads have been static for years, realization of that, and the time required to become established means that people who really want it will stay in the game. People who flash in the pan, well they leave a lot of stuff behind, but go nowhere. The real danger in user contributed media is that stuff is going to be pirated or stolen, diluting any page rank for both sites, the one that posted, and the one that ripped it.
The valuation of a company, and the reality of a company, even if the top 50K blogs took in 500 million in advertising last year, there is a lot of money to go around, meaningful numbers because that indicates that the top 50K blogs are worth at least 10 million each, not a bad valuation if this is what they are making. Some of those blogs are single people sitting in their living room commenting on things that are important to them. Some make it, some do not and the average time to getting anywhere in the blog world is about 2 years. That is when blogging starts to pay off, that is when audience share becomes meaningful, and that is where the value of the blog starts to show off.
And that is the fun part, bloggers in their living rooms are going to start the next f’d company blog site if the whole shooting match goes to Hades. There will still be user generated content, people who are not working have more time on their hands, expect linked in, MySpace, Facebook and others start to boom in a downturn because your friends might know where a job is.
Think this one through, most of our jobs have come about because of friends, not because of Monster or Dice, social networking is going to rock in an economic downturn. Ads are going to rock in an economic downturn because inventory to run ads on will increase, prices will decrease, advertisers will pay less because the market will be depressed, sites will not earn as much, but we are talking about people in their living rooms, or small shops, and there is always site sponsorship like on Techmeme to help pay the bills. . Top it off, people will still click on ads, and they might click on more ads because they are bored and have more time to spare.
Either way, it’s a win, all the way around, thanks for the doom saying, it was entertaining, but too easy to poke holes in, which is why we are leaning in Marshall’s direction this morning.
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