What Bubble 2.0? Try Babble 2.0 24 Oct 2005

42 comments Latest by Mike

There sure is a lot of talk about “Bubble 2.0.” Interestingly enough it’s coming from the VCs this time. There’s even a Bubble 2.0 blog.

Whatever. This is premature, cover-your-ass babble. Babble 2.0, not Bubble 2.0. Bad business decisions by a few don’t equal a bubble. Funding companies without a future isn’t a bubble, it’s crappy investing.

12 people (hell, make it 13) with VC money building a specialized web browser is a bad business decision, not the sign of an impending bubble.

Building your company to be bought by ODEO (a “pre-revenue” company as VC David Hornik calls it), is a bad business decision, not a bubblicious red flag. ODEO may make it, but building to be bought by ODEO is just plain stupid.

Over promising and under delivering isn’t bubble fodder, it’s bad marketing. In any industry the vast majority of new business fail. That’s the business life cycle, not a bubble popping.

The real bubble in the late 90s was inflated by the public stock market. Any signs of bubble inflation today are coming from the private investment market. The VCs are the ones puffing up the valuations by way of their “enter-to-flip” investments. Why all of a sudden is a company worth more because a VC plows money into it? Got me. Are you worth more the more debt you have?

So for those with real products, real customers, and real revenues: press on. Don’t worry about those that don’t have what you have. Stay focused, stay lean, and stay in front. Let the rest worry about their own fundamental business problems.

42 comments so far (Jump to latest)

Jesper 24 Oct 05

Awesome. (Not the bone-headed reasoning that “it failed last time (mostly because of us inflating it, but don’t tell anyone), and now it’s gonna fail again, or not, well, maybe”. The post.)

Vince 24 Oct 05

“Getting Real” has been taken to a whole new level with this entry. Well-said.

Should be interesting to watch the feedback on this one…pardon my while I go make some popcorn to enjoy the ensuing discussion…

bubble bursting 24 Oct 05

The Web 2.0 community has been premature in thinking itself revolutionary, so it makes sense it would be premature in declaring itself a bubble. It’s funny though. I imagine most people don’t know Web 2.0 even exists. But maybe that’s because it doesn’t?

Anyway I totally agree with this post. They’re just bad business decisions, not a bubble bursting. There’s no bubble to pop.

Mathew Patterson 24 Oct 05

In any industry the vast majority of new business fail.

This is the real key - around 90% of new businesses fail within 5 years. Even a really big bubble can’t get much more burst than that.

What would cause another bubble? What was the tipping point last time?

Mark 24 Oct 05

Thanks you Jason for some common sense. I swear if I had read another post regarding bubbles, especially coming from individuals / groups who’ve released nothing but a blog, I would scream.

Andy Travers 24 Oct 05

Erm, agree with lots of this, but shouldn’t we wait until Flock actually launch their browser before we start making judgments? I don’t know the story behind Flock, but jumping on them when they are at ‘developer preview’ stage seems a *little* tough to me.

Anonymous Coward 24 Oct 05

jumping on them when they are at ‘developer preview’ stage seems a *little* tough to me.

1. It’s public for everyone now. That’s not a developer preview.
2. By the time they launch the real 1.0 they’ll probably have even more than 12 or 13 people.

Mike Rundle 24 Oct 05

Amen homey.

One of my favorite quotes is still: “All startups are non-profit except for Google.” Forgot who said it though.

Mark - who are you talking about?

Odium 24 Oct 05

Who’s building their company to be bought be ODEO? Is that really true? That’s nuts.

Jamie 24 Oct 05

Jason, I agree with all of this. What’s funny is what’s fueling “Web 2.0” is about the same shit that was fueling “Web 1.0”. Does anyone remember the “eyeballs” buzzword? That’s all that Yahoo and Google cares about these days. Eyeballs for serving ads to you, me, and everyone else. Wanna make money? Gotta get “eyeballs”. Just like “Web 1.0”.

Jan 24 Oct 05

IMHO the first bubble burst because of this silly idea: “the internet changes everything”. Bubble 1.0 startups just ignored economic principles like “having to make profit”.

Startup 2.0 seems to know that the internet *doesn’t* dramatically change hundreds of year economic principles. Start low, control your growth, earn more than you spend. Common sense in the real world. “Getting real” and “Web 2.0” in the online world :) It wouldn’t be a successful movement without a catchy name I guess :)

Baeck 24 Oct 05

Why is a company all the sudden worth more because a VC plows money into it?

Well, on the one hand, when a VC invests in a company, you can usually be sure that the company isn’t undercapitalized, which is the downfall of many companies.

The real problem with VCs, though, is the culture change they bring to an organization. They bring in outside directors and management that usually don’t know too much about the company or even the industry and then manage the business with the sole goal of quickly pumping the company up so they can get their money out. This kind of management not only ruins the culture of the company, but also presents its own brands of “doomsday” scenarios that will lead to the demise of the company.

Kyle Adams 24 Oct 05

I happen to like Flock. What’s with the condemnation? Did I miss a previous posting on why Jason doesn’t like Flock?

JF 24 Oct 05

Did I miss a previous posting on why Jason doesn’t like Flock?

I’m not saying anything about Flock the software. I’m just pointing out they took VC money and have 12+ people working on a highly specialized web browser.

John Y. 24 Oct 05

I’ve got to admit I don’t really get the point of Flock. It appears to be Firefox with a del.icio.us bookmarklet built in. Whoopee.

Also, the fact that they don’t appear to have any way to make money doesn’t really bode well for the future.

Mark Sigal 24 Oct 05

I think that your analysis is a bit superficial. The reality as this plays out from past experience is that when an excess of dollars chase a market, more startups materialize to seize the “opportunity” and the dollars.

Now let’s say that you are one of the companies in the space that had a self fund or nominal fund plan based on targeting what you believed was a winnable beachhead, and now that beachhead is sliced 15 different ways and you have to compete with an excess of funded companies spending dollars to stay on the radar.

Suddenly bubble is meaningful to you, irrespective if 13 of those 15 companies have no reason for being, and yours is delivering the good stuff.

What a lot of people don’t understand about the venture finance engine is that good, bad or indifferent it operates on a swinging pendulum between greed and fear.

When either side of the pendulum excessively prevails, it is bad for startups and bad for investors. Plus, since you have so many bloated companies (from a funding perspective) feeling that they need to pursue an arms race to validate their reason for being, you end up with a lot of products that are frosting on complexity.

Truism: where cheap money is in surplus in ANY field an excess of increasingly diminished quality supply (of widgets, real estate, software, donut shops) will find its way to market.

Don Wilson 24 Oct 05

The Flock browser isn’t exactly what I’d call VC-worthy material.

Mark 24 Oct 05

Mike -

Do a Google or Technorati search for bubble 2.0. More people doing alot of worrying than there are actually producing software and / or solid ventures.

Christopher Fahey 24 Oct 05

I want to know, too: Who are you saying is trying to get bought by ODEO? I would have guessed that ODEO was trying to get bought themselves!

David 24 Oct 05

The “bubble” this time around is lots of people spending their life savings + angel money (and sometimes VC money) on failing ideas. So, sure, it may “pop” for them, but not at the expense of the industry, methinks.

JF 24 Oct 05

Do you think, though, that maybe there are VCs out there who aren’t interested in flipping companies

Of course.

Damien 24 Oct 05

The bubble 2.0 theory sounds more like a bunch of shady business execs trying to tell the VCs “don’t blame us if it fails, its the market’s fault not ours”.

Darrel 24 Oct 05

I agree, but the very fact that many ‘web 2.0’ businesses are getting bought for silly amounts of money seems to indicate that targetting your business for a buy-out is as much a valid business model as any.

Tom 24 Oct 05

‘My favorite Web 2.0 app is still the original TCP/IP version of Quake, Quakeworld.’

Interesting that you mention quakeworld, from what i remember the quake web scene back then was ahead of it’s time. The news sites were posted in a blog style format where comments were usually allowed, there were radio shows and even an entire network of gaming shows if i remember right. I actually wonder what happened to all these shows and if they have been reborn with the new podcast craze.

Deirdre Saoirse Moen 24 Oct 05

Fundamentally, I’m egotistical enough that I want to see my code not only see the light of day, but continue to see the light of day. Therefore, I don’t even get why engineers sign on for these kinds of companies.

pedro - brazil 24 Oct 05

talking about web2.0: did you guys read what Joel has to say about web2.0? opinions?

Dan Boland 24 Oct 05

Vaibhav: That’s my impression of Flock too.

Jon Horn 24 Oct 05

Jason Fried Said: I’m not saying anything about Flock the software. I’m just pointing out they took VC money and have 12+ people working on a highly specialized web browser

Once again Jason just wants to point out that his company builds software with only 5 employees (now 7). *yawn*

Jason, it’s possible that people can have different goals, no? Or must they do everything your way (the self-proclaimed “right way”)?

JF 24 Oct 05

I’ve never suggested our way is the only way — quite the contrary. There are many many different ways.

I’m just pointing out on that Flock is a web browser built by 12+ people with VC money. A web browser. A browser with some social software built into it. Very very small market. 12 people. VC money. If that makes sense to you, then fine. It doesn’t make sense to me and that’s why I posted it.

Ash 24 Oct 05

Thank you. Excellent post, Jason.

Ian Ashley 24 Oct 05

Agreed.

Brad 24 Oct 05

Why all the backlash towards Flock? Is it because you were all riding the flock hype wave and are now dissapointed in where the ride ended?

Honestly, I don’t get it. Lots of companies release things. Lot’s of companies take V.C. money. Lots of people have ideas that they think are great and do whatever they can to see their ideas to fruition. Are they hated because they appear corporate instead of little-guy? Is it because they didn’t ‘earn’ their stripes in some guys basement but rather used V.C. money? Is it because they are funded instead of self supporting? Is it because they are coming across as trying too hard? Is it because their logo is blue instead of red?

They obviously over-hyped themselves if this is the response they are getting from the sneezers, but could someone please explain why they seemed to be hated before they’ve really done anything?

Steve Turner 24 Oct 05

Good post Jason - and the main point here seems to be the misuse (or is that overuse?) of funding, not necessarily the products being made. But then I’d hardly pretend to know the exact reason behind some VC decisions…

Anyway, the most worrying “bubble” signs I’ve noticed is the sudden resurgence in the media of very bubble-specific articles hyping the latest product or trend, all with the “product x is here to destroy radio”, or “product y will change television as we know it” slant.

Apparently the Internet is changing everything again…

jw 24 Oct 05

Back in the days when DFJ was just Draper Fisher, I remember sitting in their board room (was it in a marina? Except for the board room, it’s all a blur) and listening to Steve Jurvetson tell us that our business plan was revenue-poor by an order of magnitude.

After some careful “re-consideration,” we re-jiggered the plan (but not the product), did the rounds with almost every V.C. in the Bay area again, and got the money. Woohoo. Little did we realize that the blessings of V.C. funding are short-lived but long-suffered. They had us by the short hairs, and from that point made business very, very difficult. Did they introduce us to the successful companies in their portfolio? They did not. Did they help us secure other funding when we needed it? They did not, except to come at us again with much less favorable terms, back us into a corner, and then pillage the women and rape the fields. My children still bear the scars.

When we were acquired, they took their money and praised us and talked up how good our relationship had been. There is a level in hell for V.C.s, and it’s hotter and darker than that for murderers, traitors, or lying presidents.

But the siren call of “free” money is difficult to resist. Those who take it are like schoolkids who unknowingly accept the drug dealer’s crack. Once you check in, you don’t check out. The companies are the victims here, the V.C.s are the perps.

I will give the benefit of a doubt to just about any new company. At some point, they had purity of vision: they saw a need, or an annoyance, or an opportunity, and tried to do something about it. But then some cocky straight-out-of-Stanford aspiring V.C. comes and makes them roll over, beg, and fetch. They want to hear the buzzwords, want to dream their comfortable dreams of success which requires no effort on their part, want to giggle when you are forced to grovel.

Blame the V.C.

jw 24 Oct 05

(Sorry for the mixed-metaphor-palooza above. I couldn’t resist.)

Andy Hagans 27 Oct 05

OK, the fact that so many of you are bashing Flock suggests to me that it has gotten a lot of PR, and that when it launches, it will get a lot of downloads and thus a solid base of users.

Flock most definitely has a profitable business plan.

Let’s say 2 million people download Flock.

-Each time one of them uses the little ‘search widget’ to search Google, and then clicks on a sponsored link, Flock will get a cut of Google’s revenue from the click. (Hint: Google makes 99% of its revenue from these sponsored links.)

-Each time someone uses that same widget to search Amazon or eBay or shopping.com, AND goes on to purchase something, Flock will get a cut of the purchase.

Sounds like a pretty damn good biz model to me. Oh yeah, the only thing they need is that large user base — boy wouldn’t it help if they got a lot of buzz pre-launch … CHECK.

As for the brand and usefulness of the product itself? I see a huge potential for a ‘branded’ HQ Firefox+extensions /all-in-one /version-of-Firefox-for-highly-web-literate-people …as opposed to getting Firefox and experimenting, adding extensions one by one… which is a pain in the butt.

Mike 20 Jan 06

Flock’s business plan isn’t much different from what Pluck started 3 years ago… and they don’t exactly look like a good bet to pay multiples on their funding.

Regardless of what the VCs, entrepreneurs, or media think - it’s the speculation from investors that makes a bubble. Except for GOOG I don’t see much of that on the markets (plenty on the blogosphere though). Whether the M&A or IPO markets heat up or not the real answer is to build software and features until it really is profittable one way or another.

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