Wednesday, October 26, 2005

2 B or not 2 B?

The title of this post is IM-speak for the self-referential question that seems to have gripped the blogosphere: Is Web 2.0 a bubble or not?

Marc Andreessen changed my vote during a conversation we had at the Copa (I mean of course the Cafe Copa in Palo Alto, not the-hottest-spot-north-of-Havana Copa). Between sips of my soy-decaf-mocha, I lazily referred to the Web 2.0 bubble, when Marc challenged me with "What bubble?"

This struck me as an important question for a VC like me to seriously consider, not only because Marc has been right more than once in his life, but also because he is twice my size.

I blabbered on about the web2.0 frenzy, after which Marc politely observed, with unassailable logic, that frenzies do not imply bubbles. Domestic internet IPO's are sucking up little if any public capital, and U.S. venture capital investment in internet companies actually declined in Q3 (which is backed up Thomson Venture Economics).

Marc was right again. Suffering from VC-herd-mentality, I had confused the excitement around today's new technologies with the excessive IPO march of Web1.0. All we have now is some soap--to blow a bubble we'd need a stream of hot, airy IPO's. (if only...) True, anecdotal data alert us to a coming wave of venture capital that will indiscriminately flow into every startup touting AJAX, wikis, RSS, tags, Open Source and consumer content. But over-funded ventures do not always beget IPO's--remember Go, Pointcast, Napster and Friendster?

So (in a further tribute to Godel, Escher and Bach) I assert that all that bubble spotting is itself just another bubble. The much more important question is whether there is substance to the frenzy. Many of us, including Andreessen, seem to think so, but let's save all the reasons for an O'Reilly conference, not a Saturday 2AM blog.

I have one last question to pose here, and to ask Marc next time I see him:

Why now? Why did all these new technologies seem to emerge in 2005, in a surprisingly sudden end to the internet's first Dark Ages? How much of it springs from the finanical success of Google, or the integraton ease of XML? Or should we expect this rate of innovation to only increase as we accelerate inexorably toward Ray Kurzweil's singularity?

I posed this question to my fellow panelists on a VC podcast, and the only answer I got was "2002"--that is, the year when programmers had nothing to do but dream up new stuff. (Great, another reason for Republican think tanks to advocate unemployment.)

So returning to IM speak... IYHO, iz w2 1 tym tng o d nrmL st8 of INOv8n?

CUL8R!

5 comments:

  1. I think there is an astonishing lack of historical perspective in the technology business. Web 2.0 is just the latest wave in the constant ebb and flow of the communications revolution that has been going on for the past couple hundred years. I highly recommend reading “The Victorian Internet” by Tom Standage. The ups and downs of the adoption of the telegraph and radio business sound a lot like the ups and downs of the mainstream adoption of the internet. I think this inexorable revolution in communications periodically speeds up or slows down based on the limitations humans have in adapting to change. I think social psychology and cognitive psychology can provide more answers to the reasons for these ebbs and flows than technology experts can. The first round of the Internet was slowed down by the limits of individual humans and social groups to manage change. As mainstream users such as corporations went into the mode of assimilating the last round of change the innovators went to work on the next round of change.

    People in the technology business would be a lot better off reading things like The Ascent of Man by Jacob Bronowski or Diffusion of Innovations by Everett M. Rogers or The Social Psychology of Organizing by Karl E Weick. All of these books provide a longer term perspective on the cultural and social changes that have been going on for some time in a relatively consistent and predictable fashion. Why the technology industry seems to hyperventilate over every ebb and flow along the way is beyond me. Why any smart investors or technologists got so carried away with Web 1.0 and started moving too fast and carelessly and why they would abandon the scene in 2002 is beyond me as well. This is a process that has been going on a recognizable way for at least a 100 years and which is continuing to accelerate. Each new business model comes on more rapidly than the last when you look at over that period. Any savvy investor or technologist is swimming in a world of opportunity and can substantially improve their chances of success with a long term view and a plan to stay in the game (while maintaining a rapid ability to learn and adapt). Though its not often commented on I think the most admirable trait of Google was their patience. They had the savvy to be both aggressive in building the core technology and patient and adaptive with their specific productization decisions and business models.

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  2. Have you read Nick Carr's musings on the "religious" aspects of Schmeb 2.0? You should also read Spolsky poking fun at the associated technobabble.

    (links to both at: http://dreymann.blogspot.com/2005/10/religion-920.html)

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  3. Hi David,

    I guess the question is when is bubble-speak a precursor to a looming burst and when is it just reflective of a meme that propagates really well?

    Personally, I think the latter case is at work since SOOO many people are talking bubble, yet my thesis suggests that the marriage of digital media, applied web services and the RSS-powered blogosphere is just starting the second quarter.

    For what it's worth, I wrote a post called 'Bubbles, backlash and grim reapers' that puts the topic under the microscope a bit and also provides links to recent posts by others that espouse the bubble argument.

    Here is the URL if you are interested in such things: http://thenetworkgarden.blogs.com/weblog/2005/10/bubbles_backlas.html

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  4. Despite exploring a lot of references to the term and reading a few well written explanations, I'm convinced that "Web 2.0" doesn't exist. It's just our human tendency to try to gather independent developments together under one easy to reference label. Certainly these are exciting times in software technology and services, but i think we do a disservice to these innovations by muddling them together under a phrase that's inherently meaningless. This topic has moved me to post on it at length. See http://nextrelease.blogspot.com/2006/01/web-20-its-not-release-at-all.html.

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  5. David,
    I hope you don't mind a response to an aged post, but your question about why so much innovation now intrigued me. I agree with the thought that massive unemployment caused the next wave of innovation. However, there are some modifying factors that also come into play.
    I arrived in the Bay Area at the nadir of the previous bubble and I played with many of the out of work dotcommers that have reentered the start-up lifestyle. OddPost, Flickr, del.icio.us, etc... were all born by people that took advantage of disparate technology evolutions and combined them in new ways to create better answers to emerging problems. (New infrastructure (cheap, commodity servers), Hacked lightweight Internet languages (AJAX/DHTML), Proliferation of Source Material (Digital Pics, Blogs, etc...), and evolved theoretical models (Tags, Metadata, Power Laws)). Coat with a generous helping of under-utilized, yet fabulous talent, you get...drumroll please...Innovation!!!
    The real question is now: How can investors take advantage of all of this innovation on a sustainable basis in a high-valuation environment?

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