When Caterina Fake, co-founder of the Flickr photo-sharing Web site, sat down in March to write a blog entry, she expected to rankle some readers. Her post, titled "It's a bad time to start a company," was a frank argument that a bubble was reinflating Internet businesses. Valuations are rising, hordes of copycat companies are getting funded, and venture capitalists are flooding hot areas with money again. Fake, who bootstrapped her company on $250,000 after the dot-com bust and sold it last year to Yahoo! Inc., wrote that those trends are making it impossible for upstarts to stand out. She dissed the notion that a second wave of Net development, dubbed Web 2.0, will benefit all the new ventures, many of which she called "features," not companies. The frothiness, she added, reminded her of 1998.

I do agree with much of the opening statement. There is a lot of money floating around; there are a lot of people willing to either take risks or fund others; and I am certain that many of the "Web 2.0" companies will fail because they don't really have a product. However I disagree with the idea that this is anything out of the ordinary. It seems to me that we are looking at a return to the more usual Silicon Valley cycles, with one area hyped while others apparently languish, rather than the simultaneous frothing everywhere of 1999.

So do I think that Web 2.0 is excessively hyped? Possibly. But that doesn't mean we should stop looking at new ideas in this space. Most of what Web 2.0 and other related fields such as blogging, rss and internet multimedia are doing today is living up to the claims and hopes of 1999. Between RSS and AJAX, for example, we appear to have solved the problem that Pointcast and other "push technology" startups were trying to fix.

Furthermore, as the BW article itself points out, one key difference between now and 1999 is that today companies can be started for far less and hence exits are consequently easier. If you have a company founded on $250,000, selling it for $5 million gives you a 20x return. Whereas a company founded on $5 million needs to be sold for $100 million for the same return. There are still plenty of hardware companies raising $5 million and more in financing but there aren't that many Web 2.0 companies doing so. As a result I feel that the bubble is far less dangerous.