This Is Not A Bubble

November 10, 2006

I heard more talk this week about a bubble. Too much money chasing too few good ideas.

I don’t believe we are in a bubble.  I just don’t see it.

We are seeing innovation beyond what we ever saw in the late 1990s. Investments are  far less, both in the overall market and on a per company basis.  The technology costs are less, too.

From ZDNet:

John Girard, founder and CEO of hosted content management company Clickability, is now considering another round of funding. The quest is vastly different from when he started the company in 1998.

“Today, like then, money is pretty easy to come by. We’re thinking about the $7 (million) to $9 million dollar range for the next three to five years,” Girard said. “In 1999 dollars, that would have been a $55 (million) to $65 million plan.”

In addition to cheap building materials for technology outfits, viral marketing techniques, such as providing a free version of software or relying on word-of-mouth adoption, keep costs down.

As a result, the financial models behind many Web start-ups have changed–and investors are being forced to change strategies.

Additonally, the web is now its own vibrant economy with sectors developing fast for social media applications for the consumer space and the b2b sector.

Case in point is the Pluck story. Pluck announced a new $7 million round of funding, lead by Reuters along with return backers, Austin Ventures and Mayfield.

The Pluck investment illustrates the growth for social media applications in the traditional media market. The investment makes sense. This is a far different investment than back in the dot-com days when people developed applications that cost a fortune for markets that did not exist.

Today, we are building applications for markets that are growing rapidly.

More from ZDNet:

Big-dollar acquisitions may remind people of the public stock market entries of many profitless dot-coms in the 1990s. But people say new online business models are more mature, and give today’s Web start-ups a better shot at longevity.

Automated Web advertising is more sophisticated and monthly subscriptions to hosted applications are proving themselves out, particularly to business customers at companies like Salesforce.com.

“Business model innovation is the biggest difference between Internet phase one and Internet phase two,” said Brad Silverberg, a former Microsoft executive and partner at venture capital firm Ignition Partners. “It used to be everything was about eyeballs but there was no way to monetize it. Today there is and that’s why this is more durable.”

Sure, there will be losers. We’ll see big investments that make no sense and acquisitions that boggle the mind.
But this is not a bubble. It’s just the market growing. Don’t agree? Convince me. Right now, I just don’t buy all this bubble talk.


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