Is Web 2.0 A Bubble?

In my opinion, the sale of MySpace to News Corp for $580 million in Mar 2006 kicked off the current round of web 2.0 expectations. The following sale of YouTube to Google for $1.6 billion only ratcheted up those expectations. There is no doubt that there is a lot of hype floating around the web 2.0 crowd these days, but it differs from the bubble years of 1999-2000 in several key ways:

• Profitable companies are emerging. Unlike in 1999, many companies have proven that they can make a lot of money on the Web. Back at the end of the last century, this was not taken as a given. Although sites had tremendous traffic there was just the promise of future profit. Today, companies like Google, Yahoo, Ebay, and even Amazon make hundreds of millions, it not billions of dollars in the online space.
• Advertising is coming online. Once again this was not a given in 1999. Many of the traditional companies were skeptical of online advertising and senior marketers were unsure or uncomfortable discussing web metrics. Most were not ready to take a risk on this untested medium. This attitude has changed significantly. Web advertising is growing rapidly, and companies both big and small are dedicating a bigger and bigger share of their budget to online. Online advertising will surpass or already has surpassed print, outdoor, and radio. As audio and video technology continues to develop, this migration will only continue. All of this money flowing into online provides the fuel for these web 2.0 companies.
• Consumers are spending more time than ever online. More than 70% of the consumers in the US are online and they are spending more and more time accessing and interacting with the Web. Book buying, television watching, and other past-times are stagnant or in decline as people turn to online activities, news, and information to take up their time.

It's true that many web 2.0 companies are not profitable. But as most of the 1.0 companies have shown, if you can get a big audience, profitability does follow. And web 2.0 companies are grabbing large audiences. MySpace is one of the top three most trafficked sites and YouTube gets 60,000,000 visitors per day (according to StatBrain). It is not difficult to imagine the poster-children of web 2.0 - Digg, Facebook, MySpace, YouTube becoming hugely profitable when they decide to concentrate on monetizing their audiences. Advertisers will pay to get in front of such large audiences.

It is also not difficult to see how thousands of niche sites can and will be supported by the advertising dollars that will flow into the online space over the next 10 years.

Is there a lot of hype over web 2.0? Yes. Will every new web 2.0 company survive? No. But many of the companies will succeed, help millions of consumers, and become profitable, successful companies.