Last week, the tech blogosphere got another bout of the "Is Web 2.0 a bubble?"-flu. This time it was inspired by a John Battelle op-ed in the New York Times. In it, Mr. Battelle makes the case that it's different this time with respect to web startups. Companies are light, and they don't require large VC investments:
Mr. Kraus exemplifies the second reason I believe we are not in a bubble: this time, the financiers aren't driving. Instead, the entrepreneurs and geeks - often one and the same - are. The lessons of Web 1.0 are never far from their minds, and the desire to create something cool that might foster some good in the world is often equally paramount with the desire to make money. The culture of Web 2.0 is, in fact, decidedly missionary - from the communitarian ethos of Craigslist to Google's informal motto, "don't be evil."
Om Malik provided some more numbers, pointing out that there's been just $200 million in total investments. Hmm, maybe it's not so bad. Maybe the Zimbras, Squidoos, Meebos, Numsums, Plazes, and Zoozios aren't the symbols of excess I take them to be.
Aah, but something is missing from the headline numbers: opportunity costs. Arguably, Silicon Valley is home to the highest concentration of brilliant minds in the country, if not the world. The most important companies in the world started there, building networking equipment, semiconductors, developing operating systems and database software and of course starting the personal computing revolution. None of these problems has been solved, and in fact we have many new challenges in the fields of healthcare, nanotech, and energy. Unfortunately, Web 2.0 is a brain drain, as the brilliant minds work on tags, microformats, social interaction, enabling the discussion, sharing reviews, RSS, and wikis. If you really thought that Robert Scoble was Microsoft's spokesblogger, as many think (though he would probably deny that appelation), you'd think that Microsoft was a company primarily interested in the business of blogging.
There's nothing wrong with any of the aforementioned things, but it would be a shame to see Silicon Valley not be the center of innovation for hard-tech in the future. As humans, we don't tend to think in terms of opportunity costs, leaving them for academics and public-policy wonks. We generally see headline numbers and leave it at that. But when you think of the millions of man-hours not spent pursuing the world's toughest problems, opportunity costs look very real and Web 2.0 looks much more like a bubble.
Suppose "Web 2.0" (which is a vague term in itself) is sucking up the most talented and best minds. Consider just one of those minds. Giving her (the mind owner) the benefit of the doubt, let's say that 50% of the time she is able to better judge how to apply her talents than a pundit blogger who thinks he knows better. And lets say she is the one out of 10,000 who reads and follows the advice given on the pundit blog. She forsakes web 2.0. But what if (50% chance) she was right in her own choice of destiny? That blog has just cost the entire future benefit of her work in this promissing field! What is the opportunity cost of a blog posting?! The point isn't that one shouldn't make provocative postings. The point is that weighing opportunity costs of life decisions is kind of silly.
Posted by: Matt Rochlin | November 23, 2005 at 06:16 PM