The NYTimes referred to Dave Winer’s piece on Bubble 2.0. From Dave’s piece:

Web 2.0 is nothing more than an aftermarket for Google. Startups slicing little bits of Google’s P/E ratio, acting as sales reps for Google ads, and getting great multiples for the revenue they generate by fostering the creation of new UGC to place ads on. When Google crashes, that’s the end of that, no more wave to ride, no more aftermarket, Bubble Burst 2.0. And the flip of this is also true — as long as Google’s stock stays up, no bubble burst.

I have a few insights on this story:

Old media is slow, clunky, and inconvienent. By the time the NYTimes published this story, Dave’s piece was no longer on TechMeme, though a healthy meme did grow around it when it was first published. This is old news.

Furthermore, any story worth time reading on the blogosphere would link back to Dave. Of course, the NYTimes did no such thing (they best they could manage was publishing Dave’s root-level URL: Scripting.com). I was reading the story online, so I think it’s a pretty sad excuse to say that the NYTimes couldn’t link back because the story was written for offline distribution. One anchor tag isn’t going to kill their web editing team. Lame.

Disregarding the delivery of the story for a second, I want to focus on the content of the story itself. I don’t think Dave is right on this one. I have a lot of respect for Dave and what he has done in developing RSS, so I’m not trying to pick a fight here. But, think about the typical characteristics of web 2.0 companies, especially the type of companies Google buys (excluding YouTube and dMarc):

• Incredibly capital efficient. Very small burn rate which consists mainly of hosting fees. Even if Google Ads revenue dries up, these companies can run on auto-pilot for the most part: like PubSub.
• Lightweight. Uncomplicated apps built to do one thing WELL. Development and customer service costs are low due to a general lack of bloat.
• User-Generated Content. Little-to-no cost of content. Cheap to keep a site feeling fresh and rewarding for returning visitors.
• Line between user and producer is blurred. Users’ feel a sense of ownership in the service (and won’t lose that sense of ownership just because Google’s share price drops).

If shares of GOOG tank, it is likely that the M&A market will be affected by the shockwave, but that doesn’t necessarily hurt web 2.0 companies. In fact, it will help some companies because it will force them to stick it out and not exit too early. The M&A market is hot because the dot-com giants and old media companies are throwing a ton of money at young engineers that have not experienced a quick win. The strength of the M&A market comes from conveinence, not necessity.

I am completely unconvinced that many web 2.0 companies need to take these exits. I think they could be long-term, sustainable companies if they wanted to be. Many of these small, lightweight, capital efficient web 2.0 companies could be the next Craigslist, just like Craigslist could have taken the same M&A exit that a lot of these young companies are taking. Whether or not these small web 2.0 companies could be the next Google is different question, and I’m still uncertain of the answer, but you don’t need to have a market cap of $150 billion to have a big win.

The Google share price is bad indicator for web 2.0 bubble. I do feel like we are in a bubble, but I don’t see how Google’s share price will coorelate with the bursting of the web 2.0 bubble (not to mention cause the burst).