Last I checked, Tumblr was on the 100 most visited websites list. That's pretty good for a "niche" blogging site.
This story is pure sensationalism, most of the companies listed have proven business models or at least substantial traction.
“I’m not saying Quora, Foursquare, Square aren’t eventually worth a lot of money, but the price to pay to get into those games is kind of amazing — $50 to $80 million?” said Dave McClure, founding partner of 500 Startups, a technology incubator in Silicon Valley. “These companies are in big markets with proven founders, so maybe not absolutely crazy but certainly eyebrow-raising.”
"The chief evidence, according to industry experts and analysts, is the way venture capitalists and established companies are clamoring to give money to young companies, including those with only a shred of an idea."
This just seems inaccurate. All of the companies mentioned in the article (and most of the companies that seem to get funding) at least have a functioning product or service. You still have to actually build something.
Take Yammer - it's not difficult to build. People made identi.ca in their spare time, for free. If Yammer turns out to have a real market, competitors in the intranet space can easily add a similar product to their line. How is a $40m VC investment justified? My guess is that the investors are betting on selling Yammer to a bigger company. This is what's known as "find a rich sucker" (or "AOL") business model, and is typical of a bubble.
To determine if it's a bubble, you don't look at the companies or products. You look at the investors. If they are loose with their money, that's when you know.
they really got that one wrong