Bubble thinking

This story from Don Dodge is almost guaranteed to get the bubblehead bar-room investment experts speculating about whether we are in an investment bubble and whether it is in what Don describes as stage two where:

Stage Two is more dangerous. Many people agree that we are in a bubble, but it will last another year or two, and there is still money to be made.

I'm not an investment expert to the point where I think the only thing that really matters as a long term play is property. But then I don't live in the US either. So anything I say beyond here is (almost) pure speculation.

I've never believed in advertising models for the vast majority of software application plays and certainly not for business applications. It just doesn't make sense. Who in business wants their Gmail surrounded by ads? Even contextual ads? Why when I'm trying to get things done do I need ads served to me?

Dodge notes from a Financial Times report from yesterday that:

Many members of the Web 2.0 generation of Internet companies have so far produced little in the way of revenue, despite bringing about some significant changes in online behaviour, according to some of the entrepreneurs and financiers behind the movement.

The shortage of revenue among social networks, blogs and other “social media” sites that put user-generated content and communications at their core has persisted despite more than four years of experimentation aimed at turning such sites into money-makers. Together with the US economic downturn and a shortage of initial public offerings, the failure has damped the mood in internet start-up circles.

I'm not sure what Dodge is thinking because at the top of the post he says:

VCs are very experienced at handling risk and failure. No one is going to lose their college or retirement savings in this bust cycle.

...while at the bottom of the post he says:

In the rush to do a deal, it seems that few of them stop to do the math on what it takes to get there and calculate the odds of success. This is another one of those cases where there will be one or two winners and a hundred broken hearts.

If there is a bubble and it is in burst mode, plenty of people are going to get burnt. While some win, others run out of cash. It's an unfortunate fact of life that all new ideas don't win.

What I do know is this: bootstrapped businesses like 37 Signals and FreshBooks that built their businesses on a model that is simple and involves paying for a service are looking pretty good to me.

Rather than chasing the pot of gold at the end of the rainbow, companies would be better advised in  listening to the sage words of Ryan Carson who in this article entitled: Our idea of success is all messed up says:

More of us should be focusing on building simple, focused, small-team web apps that meet everyday needs. Am I saying we should kill our dreams of changing the world? No. But we all need to admit that YouTube, Facebook, Bebo, Google and Twitter just aren’t the norm.

Instead of desperately trying to create the next phenomenon, which is highly unlikely, why not aim for something that’s definitely achievable?

If you have a startup of the kind Carson describes and are endeavoring to serve the business market then I want to hear from you. If you're early stage but have a great idea that has an infrastructure flavor, I want to hear about that too. If you're advertising based or in 'build to flip' mode, I'll probably pass.