Ask HN: Bubble 2.0 - what lessons were learnt the first time around? | Hacker News Reader

Ask HN: Bubble 2.0 - what lessons were learnt the first time around?

9 pointslwhi10 comments

I'm increasingly reading reports that we're about to enter another period of gross over-valuation and increased speculative investing.

This article [1], describes a possible bid of $6-$8 million, for a web-service that hasn't even reached beta.

Assuming this kind of story is a warning sign, and we are approaching another period of lunacy; is it possible to glean anything from the last bubble? Were any lessons learnt? Do any of you have any advice for getting through this kind of scenario with the least amount of trauma?

[1] http://techcrunch.com/2011/02/02/hipster-groupon/

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I wasn't around during the first bubble, and I don't actually run a company presently. (So take this with a grain of salt.)

But from my perspective, most of the failed sites in bubble 1.0 didn't actually have good products - they didn't actually sell a basic 'X product' to 'Y customer'.

I think the same thing is happening now. Just look at Path, Hipster, etc. being valued at super high numbers. These sites don't actually have a real, solid business model. They're just social networks.

(In my opinion) the startup community needs to stop making social networks and pseudo-businesses and focus on real products and real problems, like the rest of the business world has for centuries.

>>most of the failed sites in bubble 1.0 didn't actually have good products - they didn't actually sell a basic X to Y customer.<<

Some counterpoints to ponder:

1. Y (i.e. Internet user base) then was much smaller, as compared to what it is today

2. wombs of the WWW were barely pregnant with eCommerce (if it was known by that name) then

>>I think the same thing is happening now.<<

IMHO, there are major differences involved: in addition to 1. and 2. above,

3. means to monetise eyeballs (traffic) were scarce then (random, untargeted, ROS banner ads - $15/20/25 CPM, anybody?). Heck, (m)AdSense wasn't even around!

I could go on, but let me conclude by saying that (even) non-monetised or barely monetised eyeballs/userbase/traffic has much more commercial/valuation potential today as compared to bubble 1.0 days.

What do you think?

1. Very true.

2. Also true, but I think there's somewhat of a distinction between eCommerce and all web businesses (at least what I've been led to believe.) ECommerce is selling offline things online, or rather, selling products through an online channel. Zappos, Amazon, 37 Signals etc. are examples of this.

On the other hand, many of today's startups don't actually sell anything. They have a feature, not a business. Is Path really an eCommerce site? Hipster?

3. True, but again, ads aren't exactly a "product". They're an extra level above your service, and are notoriously much more difficult to pull off successfully. Also, I think that most people (customers) have a strong disdain for advertisements, on a whole. I wouldn't rely on ads to power a product indefinitely into the future; personally, I tune out almost all all advertisements, and I know many people who do the same. Building a business on a fluctuating ad market doesn't seem like a great business model to me.

Selling products, however, is much more concrete.

The entire Television industry is being supported by ad revenue for decades. Why can't the same model work for the web?

http://techcrunch.com/2009/03/22/why-advertising-is-failing-...

(Techcrunch, I know. But it's a really good article from an academic.)

From the article: People don’t trust ads. There is a vast literature to support this. Is it all wrong?

People don’t want ads. Again, there is a vast literature to support this. Think about your own behavior, you own channel surfing and fast forwarding and the timing of when you leave the TV to get a snack. Is it during the content or the commercials?

People don’t need ads. There is a vast amount of trusted content on the net. Again, there is literature on this. But think about how you form your opinion of a product, from online ads or online reviews?

There is no shortage of places to put ads. Competition among them will be brutal. Prices will be driven lower and lower, for everyone but Google.

Also, don't forget that the NYTimes is instituting a paywall, and the Wall Street Journal already has one. These sites obviously couldn't function solely on ads, and they get massive amounts of traffic. Likewise for Hulu: they couldn't get by with ads alone either. Unless your web business has an extremely low overhead (read: simple web functions) I seriously doubt ads will be enough.

>> The entire Television industry is being supported by ad revenue for decades. Why can't the same model work for the web? <<

Well-said. As a matter of fact, it can; and it is, today.

(Those who are not convinced, just look at Google's IRS filings for the past 2-3 years.)

>> many of today's startups don't actually sell anything. They have a feature, not a business. Is Path really an eCommerce site? Hipster? <<

I was referring to the term 'eCommerce' in a somewhat broader context; a context in which eCommerce is equivalent to (gosh! I can't find the 'equivalent to' symbol on the keyboard - not even with the Alt+Num Pad key combinations - can you beat that!!!):

Physical goods / soft (digital/electronic) goods / advertising

>> ...ads aren't exactly a "product". They're an extra level above your service, and are notoriously much more difficult to pull off successfully <<

Partly agree, partly disagree.

This boils down to how you define a 'product'.

In my books, a product is something that you - or someone else - makes that others would be/are willing to pay (money) for. If a web site can generate advertising inventory (via traffic/eyeballs/members) that someone is willing to purchase, that is (nearly) as much of a product as a car/laptop/pizza/pair of nike shoes.

Think about this: If ads weren't a product (that sold for $$), where do you think Google would be today?

Now, if you say that Google is a (big?) part of Bubble 2.0, you just could be on terra firma there, but you'd find yourself hard-pressed to convince many people (myself included) of that.

>> and [ads] are notoriously much more difficult to pull off successfully <<

This, probably, is the most valid (such as it may be) point of your whole argument so far, with certain reservations.

What you probably mean here is that ads on typical social networking/forum web sites are generally low paying and if this is what you're saying, I'd agree with you whole heartedly. (We have a [regional] SN site averaging about 1M page views a month that generates < $100/mo on ad revenues. Although at no point during the 4+ years since we launched it have we really focused on revenue generation/maximisation, to be fair to the argument, that's neither here nor there).

>> Selling products, however, is much more concrete. <<

No argument with that, but as I mentioned above, it depends on how do you define a "product".

Back it comes to you now. :-)

Trauma? Bubbles are great for founders - while they last. Look at it as an opportunity - there's a reason why "Please God, just one more bubble" was a popular bumper sticker for a while.

The primary takeaway from the first bubble is that there's never a bad time to realize a profit. Don't let it ride - put the money in your pocket whenever you can.

This is absurd. I am working on my internet startup as we speak and reading news like this really disappoints me. Why is our country all about a quick buck or fast cash rather. We move from Internet bubble in late 90s to Housing bubble in the '00s back to the Internet bubble... is housing bubble next?

My bet is on an educational bubble (although it isn't strictly comparable.)

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