The biggest thing on the minds of the blogosphere recently is whether we are about to enter what I affectionately name “Bubble 2.0″. I can understand fear. Lets face it, almost all of the Web 2.0 companies created in the last several years have been at least partially beholden to the fickle mistress that is advertising. Not only that, but major corporate restructuring seems to be the norm. Add this to Dave Sifry stepping down from Technorati and you have a pot ready to boil.

Is this the beginning of the end? Not just yet.

Evolution

In a world without Apple, Google and Microsoft I could believe that Bubble 2.0 is just about ready to pop. However, with these companies pouring huge amounts of money in acquisition after acquisition, it is difficult to see the bottom that is supposedly going to fall out.

I am not saying that we are in a healthy market, especially not in the Valley. VC money flows far too freely, and companies with not a prayer in the world of transforming eyeballs into revenue are receiving valuations based more on hubris than the bottom line. Having seen quite a few of these companies evolve, what I predict is not a world staring in awe as the wonder known as “Web 2.0″ crumbles, but instead a series of hiccups as the market corrects itself.

Features vs. Platforms

Web 2.0 companies can be broken into a few broad categories, I’ll deal with two — features and platforms.

Companies like Twitter or the scads of mashups being developed for Google are features. They are usually one trick ponies, that draw their value from being the first to the door. These companies are ripe for acquisition. Chances are, many of the ones that don’t simply fade away (which is common in any industry) will be picked up by one of the big players and integrated into their infrastructure.

The Facebook’s of the world are what I consider platforms. These are the companies that are trying to be revolutionary instead of evolutionary. While many of these companies will fail, sucking piles of VC money down the tubes — enough of them will survive to prop up the tech economy. Some of these companies might also begin to acquire features of their own, further mitigating the “pop”.

The Difference A Few Years Make

Despite the fact that I think all of us would benefit from looking outside of our tiny tech community and trying to understand what really produces value for the wider market, I think that since the last bubble many entrepreneurs have learned lessons. The biggest lesson is that the Web is completely unlike the offline arena. Most of the worst bubble horror stories came from people not understanding the web and trying to use it for things that it wasn’t designed for. Webvan trying to sell groceries online, for example.

While we can also blame VCs for not doing their due diligence, most of the fault falls squarely on the shoulders of the entrepreneurs who were still trying to “feel out” what the web could do and failed. In the current innovation economy, I see the web behaving like any other industry. A lot of people will fail, a few will succeed and the successful ones will help mitigate the losses of the failures.

Web 2.0 Roundup

Intuitively it feels like a safe bet to say that a bubble is approaching. It helps us to understand why the new paint seems to be starting to peel off of Web 2.0. Chances are good, however, that what we are seeing is not the beginning of a “pop” but instead a web that is evolving to become a lot more like its terrestrial brothers and sisters. Will there be a painful market correction sometime in the future, maybe. Will it be as bad as the infamous tech bubble that crippled the community a few years back — I doubt that very much.

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