Web 2.0: A new dot-com bubble in the making?

Not this time, say experts, because of consumer demand and a mature Web infrastructure

The dot-com bubble burst -- numerically at least -- seven years ago this month when the NASDAQ Composite index peaked at 5,048, more than double its value just a year earlier.

What followed was a bloodbath of layoffs and consolidation caused in many cases by "dot bombs" -- companies launched with great exuberance to grab as much Internet real estate as they could without mounting a successful revenue model.

In 2007, new Internet technologies have prompted another rush by start-ups and industry stalwarts to tap the burgeoning energy associated with Web 2.0 wikis, blogs, podcasts, widgets and social networks to quickly extend their Internet real estate.

Cisco Systems Inc., for example, this year has acquired two firms that focus on social networking, while venture capital is flowing for newly established firms like Eons Inc., which is making a social network for the 50-plus crowd, and Geni Inc.,  which is building a social network for families.

But while the Web 2.0 phenomenon may have some things in common with the Internet bubble, experts note that there are also stark differences, including the low cost of entry for companies launching blog, wiki or social networking businesses, and the maturity of infrastructures like broadband that are needed to support many Web 2.0 technologies.

The main difference, however, is that this time around consumers are driving the adoption of the technologies rather than companies trying to force their Internet sites and wares onto users, according to industry observers.

Indeed, instead of parking on the Web 2.0 sidelines to wait out a possible bubble, companies should be embracing the new technologies or risk losing out to competitors, said Andrew McAfee, an associate professor at Harvard University who coined the term Enterprise 2.0. 

"What if they decide to ignore this phenomenon and their competitors don't and are able to harness this energy we see on the Web with Web 2.0," he said. "If the competitor can harness that internally and with its community of customers and suppliers … how much trouble would that first company be in? How unpleasant a scenario would that be? That is a key question for managers."

McAfee, like others interviewed for this story, doesn't expect that a rush to create Web 2.0-based systems will lead to a new dot-com bubble that will burst under the stress of failing businesses. "The first go-around was so big, and there was so large a collapse that I have trouble believing either the up or the down will be as big this time around," he said.

In addition, he said, venture capital investments in the new firms are generally far lower than those made during the late 1990s, and the companies receiving funding "typically have more than a PowerPoint" business plan, he added. "Maybe sometimes they don't have revenue … but they have a product, some customers and adoption."

Internet Pioneer Goes 2.0

As the co-founder of Netscape Communication Corp. and co-author of the Mosaic browser, Marc Andreessen has had a front-row seat for the growth of the Internet. In late February, Ning Inc.  - a company he co-founded to host social networks for users - completed work on its second major release. During its first two weeks of availability, users used the new release to create 15,000 social networks, he said.

While corporations have historically been the gatekeepers for content about their businesses, a new generation of users is now squarely in charge of generating content about those companies, he said.

"It is like the old joke that asks, 'Where are they going?  I am their leader, and I must catch up to them.' In a lot of cases, consumers are racing ahead of the businesses trying to serve them," Andreessen said. "We think there will be millions of social networks and everyone will be using them over the next five years."

Gina Bianchini, Ning's CEO, added that the risks of moving into the Web 2.0 world are much lower than those facing companies creating Web-based products in the 1990s. Such early development efforts required costly projects to build up corporate IT infrastructures to support the new offerings, she said.

"We're seeing companies use Ning for literally $30 a month," she said. "If you get burned on something that costs your company $30 a month, that is very different from get burned by something that costs $50 million."

NBC's The Apprentice Goes 2.0

James Sun, CEO of social network Zoodango Inc., asserts that businesses must adapt to the Web 2.0 paradigm of interacting with customers rather than continuing to "blast them" with traditional advertising. Donald Trump was interested enough in Zoodango to choose Sun as a contestant for the current season of The Apprentice television reality show.

Zoodango this month launched a new program to help businesses and nonprofits use Web 2.0 principles to augment branding and marketing efforts. Zoodango allows business to interact directly with social networking users and then to extend their brand through word-of-mouth, Sun said. Businesses also can use Zoodango to create subgroups of employees and customers, he added.

Just as The Apprentice boosts the brands of products used in its episodes by folding them into the heart of the show and having contestants create ways to promote brands, Zoodango lets consumers interact with a company, Sun said.

In the next several months, Zoodango plans to launch a "virtual Starbucks" online community to allow business professionals to network online as they would in the coffee houses, he added.

Joseph Jang, director of marketing at mortgage banking company Liberty Financial Group in Bellevue, Wash., said his company plans to use Zoodango to boost brand recognition to a block of customers the company hasn't reached with more traditional advertising outlets.

The company and its 80-plus loan officers can post profiles on the site to generate leads and interact with users before networking events, he said. "[Social networking] promotes aspects of interaction you haven't had before between consumers and the business," Jang said. "I don't think I fully grasp the potential of the interaction between the two entities. This is a living, breathing thing. It will evolve as it goes along."

Also dipping its toe in the Web 2.0 waters is the Texas state bar, which next month will launch a own branded social network that will let its 80,000 members connect, collaborate and network, said John Sirman, the organization's Web manager. The organization will use technology from Affinity Circles Inc.  to create a private social network that only its members will be able to use.

Attorneys with existing blogs feed them into the community, and members can form themselves into special interest groups to collaborate on specific topics, he said. In addition, a job listing feature will allow users to see if any members of the state bar work at the company advertising, he added.

"We know that a lawyer's business and career depend on networking and connections they have with other people," Sirman said. "I see [the social network] as providing an online venue to do that and met people outside their local circles."

David Kirsch, assistant professor at the University of Maryland and founder of the Business Plan Archives, a historical archive of business plans and other documents from the dot-com era, said the Web 1.0 companies helped ensure the survival of the new firms by helping to put into place an underlying infrastructure to support Web 2.0 technologies.

"You can outsource everything and use Salesforce.com to allow your salespeople to not have to have an office," he said. "There were community sites in Web 1.0 but what is happening here is we now have the simplest infrastructure pieces like broadband.

For the consumers and the people who are participating in Web 2.0 …they have what they need to actually do the things people were just talking about in Web 1.0."

Copyright © 2007 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon