ON WEB 2.0 FUELING TECH ENTHUSIASM AGAIN

DEJA VU

That's the feeling that's most with me as I survey the so-called Web 2.0 landscape today. 

Media Pundits like Om Malik are asking semi-rhetorical questions like "What is Web 2.0"? (the comments to the post are especially interesting in how elephants are described in the dark).  A notable quote:

"Dave Winer says, “Web 2.0 is a marketing concept used by venture capitalists and conference promoters to try to call another bubble into existence.”"

There's a palpable giddiness in the air, with entrepreneurs, technologists, VCs, investors and the media again starting to believe that anything is possible.  Although ones with long memories are remembering dark lessons from the past (see this post by VC Fred Wilson, and this one by VC Jeff Clavier).

We've seen marvelous new things possible in the last five years, since the gut-wrenching days of the implosion of the first generation of web companies after March, 2000. 

Google is obviously exhibit numero uno, followed by the eye-opening acquisitions and/or IPOs of companies ranging from Skype to Baidu to Alibaba to PartyGaming.

Internet conferences are sold out again (e.g., the Web 2.0 conference next week, whose promoters O'Reilly and Battelle coined and memed the very term last year).

And every new day brings shiny, bright new companies out from their stealthy shields, debuting their sparkly new services at prestigious industry conferences. 

Last week's Demo brought forth a new crop of interesting companies like Glam, YackPack and Digital Chocolate amongst others.  Next week's conference will likely bring more.

The Deja Vu I'm experiencing is less with Web 1.0 (1994-2001) in the latter part of the nineties, and much more with what I'll call PC Software 1.0 in the eighties.

Many may not remember those days.  The consumer PC software industry was relatively exciting, with new start-ups introducing new ways every day for make better use of these things called "personal computers.  VCs started to do well with a few of them (Lotus, Borland, etc.).

But then came the second and the devastating third version of Microsoft Windows in 1990, and the world changed.  Over most of the nineties, the PC consumer software business was a waste-land as Microsoft either subsumed the most successful and promising of its application "partner/customers"' innovations into the operating system or into its ever-growing Microsoft Office Suite.

For VCs the dial turned abruptly from greed to fear, and stayed that way into the era of the web, which started things anew in 1995.

And let's not forget of course how Microsoft helped bring the Web 1.0 chapter to a close over the next five years, by incorporating Netscape browser functionality into Windows as a feature.

Fast forward to today, and we seem to be in a happy-go-lucky, warm and fuzzy environment of the mid-eighties in terms of new consumer services based on Web 2.0 technologies, consumer created content and services, and slicker software programming technologies like Ajax and the upcoming Microsoft Atlas that promise to turn the Internet into the big personal computer in the sky for millions of users around the world, from any type of access device (PC, cellphone, PDA, appliance, etc.)

Entrepreneurs and technologists are introducing creative things everyday, fueled by an increasingly interested VC community looking for early-stage startups again, both here and in previously forbidding places like China and elsewhere.  Examples abound in so many categories:

1. Blog Search:  Technorati, Bloglines, PubSub etc.
2. Vertical Search:  Indeed-Jobs category, Become-online shopping, Trulio-real estate, Truveo-consumer videos, amongst others.
3. Tagging companies:  del.icio.us, Technorati,
4. Social networking:  Friendster, Tribe.net, Dogster and Catster for example.
5. Internet telephony:  Teleo (bought by Microsoft), Skype (bought by eBay), Vonage (bought by?? if not IPO'd soon)
6. International:  China-Alibaba, Baidu, etc.
7. Wiki Software and Services:  Wikipedia, JotSpot, Socialtext, 37Folders, etc.  (VC Fred Wilson has a good post on his enthusiasm for the space).

These are but a smattering of examples.  In these and many other categories, both here and overseas, VCs are increasingly attracted by the opportunities to "exit" these investments by selling either to the major web companies or the major incumbent companies in media and other industries (subject of yesterday's post).

Right now the "greed" is merited by both sets of buyers looking to buy features and applications rather than build it, rationalized by time-to-market imperatives and the relatively lofty levels of their own stocks (ebay-Skype $4.1 billion acquisition being a recent example).  The posts (Fred Wilson), comments and scenarios (Tom Evslin), and debates generated by that example in particular, are interesting to note.

As this post by Danah Boyd of Apophenia puts it so succintly:

"Web2.0 is a marker of the re-invigoration of competition more so than technology."

 

Of course most of the major incumbent companies are paying hard cash for their acquisitions, as in the case of News Corp, which has spent over a billion dollars cash in the last few weeks. 

My question is what happens when all the incumbents have bought all they can buy, or at least justify buying to their existing shareholders?

And when the major internet companies decide they'd rather build the features in-house or buy starts up prices that are not significant to their shareholders (e.g., Microsoft-Teleo, Google-Picasa/Keyhole, Yahoo!-Flickr)

Well, then you have things happening like Google adding blog search a few days ago, instead of buying a Technorati or Bloglines  (of course someone else may buy them as a defensive reaction to Google).

This eventuality is particularly important to keep in mind since many of the start ups are increasingly dependent on the open and/or quasi-open APIs allowing them to leverage the platforms of companies like Google, Yahoo!, eBay, Amazon, and of course Microsoft.

What happens when these companies start to add these "features" to their existing, in-house properties?

Will the current game of musical chairs end?

Will there be another VC deep freeze in some parts of the consumer internet space?

Will history repeat itself?

Or is it different this time?

To be continued...over time...

Do let me know your thoughts...thanks.

Comments

[guile]

nice, cozy place you got here :)..