If it's Not a Bubble, How Can it Burst? More Talk about Web 2.0.

I enjoyed Michael Specht's blog posting this week titled "Web 2.0 - not a bubble until it bursts". The same day, The Wall Street Journal published a related article titled The dot-com bubble reconsidered, maybe relived.

In Michael's blog, he writes: "I have noticed more and more talk that this Web 2.0 thing is really a bubble and about to burst. For me it started with MySpace being picked up for US$580 million by News Corp and just getting hotter and hotter with the biggest indicator we are going to pop Google buying YouTube for US$1.6 billion! VC’s have lots and lots of money and seem to be throwing it at everything with Web 2.0 startups raising $US455.5 million in 79 deals so far this year, more than twice last year. For me it is a bubble, period."

The problem I have with this statement is that this "Web 2.0 thing" as Michael calls it, is not a business or an industry - it is new technologies that improves the way people use the Internet.

So how can a technology burst?

The Internet did not fail us in the last bubble burst of 2000, flawed business models failed us. And this is where The Wall Street Journal's article gives a slightly different twist to this debate by providing some interesting historical comparisons to the last Internet bubble. The Journal article references a new research report showing that the primary reason for the last bubble bursting was a "flawed business strategy of the bubble era: Get Big Fast. A business was supposed to grow as quickly as possible because the first successful entrant in a category could keep out challengers....Belief in this "first mover advantage" is today tempered by a new awareness of the risks of being the first out of the chute. Back then, though, used Get Big Fast as their basic investing strategy, despite the absence of any evidence that it worked."

So the question is not if Web 2.0 is a bubble but rather if the web 2.0 first-movers (e.g., Jobster, MySpace and YouTube) who are building businesses around these new technologies are overvalued and getting big too fast. And the correct answer is .................. nobody knows.

A related perspective on this subject was provided in our HRmarketer blog titled Are you an Innovator or a Laggard with Web 2.0? Does it Matter? In this posting we wrote:

"....obtaining market leadership in the early stages of the product lifecycle does not guarantee success as the market matures. The reason is because sustainable, profitable businesses are the ones who capture the Early Majority buyers, not the Innovators or Early Adopters. And this does not happen until the Growth stage of the product lifecycle, which can be several years after Introduction of your product/service. And herein lies the risk - the business graveyard is littered with companies who were first to market and commanded a leadership position with the Innovators or Early Adopters only to get beat by a newcomer in the Growth stage of an industry.

So what does this mean for suppliers of human resource services? While it is important to stay on top of new technologies, it is more important to understand how these technologies can improve your products/services in such a way as to deliver real value to your customers. Web 2.0 technologies are emerging technologies in the Introduction stage of the product lifecycle that have yet to be adopted by the Early Majority. The question for your company is how can these technologies improve your core business?...."

But don't overspend and move too fast.