The reason for nearly all that new revenue is the birth of a real online advertising industry. The advertisers have followed the people, and the people have come because high-speed Internet access has turned the typical Web experience from clunky to lubricious. The huge financial difference between now and the nineties is the absence of IPO mania. If this were 1999, the unprofitable two-year-old student directory Facebook and the unprofitable year-old Web video portal YouTube would be filing IPOs.
“It doesn’t seem like really dumb things are getting funded,” Fred says. “You’re largely not seeing Webvans and Kozmos and Urban Box Offices.” The latter two really dumb companies were financed by Flatiron.
“The ethos in version 1.0,” says Battelle, who helped popularize the buzzphrase “Web 2.0,” “was to take as much money as you can when the money is being handed out.” No kidding: We took more than $30 million to start Inside.com and Inside magazine. “My view now is take as little as you can.”
In other words, people are still having sex with strangers, but now it’s safer sex. So far. For the most part. Half of this new generation of entrepreneurs are first-timers, by Fred’s estimate, people who watched the debacle from the sidelines. And when Rupert Murdoch pays $580 million for MySpace, and Google or Yahoo pays tens of millions for cool, money-losing little start-ups, it is difficult for other Internet entrepreneurs not to get . . . horny, which is to say greedy.
“I spend a lot of time as a consigliere to people starting businesses,” Jerry Colonna says. “I tell them, ‘Ignore the valuation stuff and just keep building the business.’ It puts us back in a 1997 time frame: What is the right price? In early ’97, we invested in GeoCities, $20 million, and a year later sold a third of it at a valuation of $200 million, took it public eight months later for $500 million, and less than a year later sold it [to Yahoo] for $5 billion.” If this is early-1997 redux, that means there’s still three more years for the money to get dumb. No wonder people are hyperventilating.
The absence of IPO hysteria means that there is no general civilian-investor hysteria. But if a hobby blog like Fred Wilson’s, allied with FM Publishing, can sell $3,000 a month in advertising, thousands of bloggers start imagining they can make real money (if not fortunes) at their keyboards. And as more journalists and quasi-journalists envision earning independent online livings, a giddy new wave of wishfulness builds.
The friend I mentioned earlier who told me about RSS was Dany Levy, and her Internet business is DailyCandy. (See “How Sweet Is It?") I joined her board in 2002, and when Bob Pittman offered to buy DailyCandy a year later, I encouraged her to do the deal, even though I was dubious about his go-go forecasts. I was half-right and half-wrong. Pittman bought most of the company for $3.5 million (after which I left the board), and now, 29 months later, wants to sell it for 50 times that.
That sounds a bit bubbly, but it’s really not crazy. And what’s interesting is how fundamentally old-school DailyCandy’s editorial and business models are. There is no architecture of participation. Editors decide what’s cool, and tell the subscribers, period. Yet unlike any print magazine, DailyCandy costs little to produce beyond the writers’ salaries, because there’s no paper or printing or shipping, and no circulation middlemen—in other words, precisely the Web 1.0 dream of a blissful Internet future, before that vision was discredited in 2001.
Like I said, nobody knows anything.
DailyCandy—and Google and all the rest of the thriving survivors—came into existence during the last bubble. Euphorias are not entirely wasteful, or all bad. As Fred says, “It takes bubbles to make interesting things happen. There’s benefit to this kind of environment.”
But “when the amateurs get in,” Fred says, that’ll be a sign of the next beginning of the next end, that our latest bipolar swing has turned pathologically manic. “At the end of the last bubble, everyone was investing. And now you’re starting to see corporate investors make ‘strategic’ investments—like Publicis,” the big advertising company. “The shakeout’s going to happen. Oh, yeah.” Two weeks ago, a Silicon Valley investor reportedly spammed the Stanford computer-science department begging for ideas to fund—which certainly sounds to me like the day in 1999 when a cold-calling banker knocked on dot-com doors in the Starrett-Lehigh building, offering capital.
The first Internet business casualty I knew was Michael Wolff, who started publishing guides to the Net in 1993, started moving online in 1995, bailed in 1997, published Burn Rate, about his wretched entrepreneurial experience, in 1998, and has been a Web skeptic ever since. In 2001, he was asked about iVillage and TheStreet.com. “I think it’s over with; it’s gone. There is no long-term prognosis. The patient has died. There is no future.” NBC Universal just bought iVillage for $600 million, and TheStreet.com, now profitable, is worth $211 million.