For many of you, Web 2.0 never really hit your awareness, but out here in Silicon Valley, it has been all the rage. As reported six months ago, it led to frothy valuations from eager investors. The dream was that a few engineers, a set of cheap servers, a viral customer-acquisition model, and a clever use of mashing together web services, could lead to rapid riches! Sounds like the dot-com bubble? This was even better, since it required so little capital to get going!
The poster child was Flickr, which got sold to Yahoo for $25M plus an earnout of another 50% on around $1M invested capital. Soon dozens then hundreds of Flipprs got started. Their model: advertising!
Flickr as a flip was followed by Fox buying MySpace for $580M, and (although not part of Web 2.0) Skype selling to eBay for $2.6B with a $1.5B earn out. Now we're talking real money! With a deal-or-no-deal mentality, and visions of Skype dancing in their heads, Facebook.com turned down $750M, and is holding out for $2B exit, even in the face of flattening traffic. Check out the chart: is Facebook worth more than MySpace?
But now the hangover is setting in. The problem: the ad models don't hold together. These little frothy companies are in the bargain basement of remnant ads, and the numbers don't work. Venture capitalists are pulling back from a momentary irrational enthusiasm. Now they are investing in either traffic or technology. Sic transit gloria 2.0.
(Of course, hope springs eternal. The latest phenom is YouTube, a Flickr for Video. which popped into popular awareness in the last three months, and now has a MySpacian trajectory of growth. Watch this space for developments .. video at 11 pm.)
