Bubble 2.0?

It feels like déjà vu all over again: Google’s $1.6 billion purchase of YouTube has people chattering about a new tech-sector bubble.

“Dot-Com Boom Echoed in Deal to Buy YouTube,” declared a New York Times headline on October 10; the first paragraph of the article uses phrases like “profitless Web site,” and “paper millionaires,” along with the dreaded b-word itself.

Maybe I’m just too literal-minded. But before the GooTube deal I didn’t see a genuine bubble forming around companies built on the user-driven Web, and I don’t see one now. Not yet, anyway.

A frothy market? Sure. That’s how Silicon Valley newshound and former Microsoft blogger Robert Scoble describes the rush of talent and money into so-called Web 2.0 companies. It’s hard to look at the $25 million in funding that an obscure podcasting company called PodShow attracted without worrying, as Netscape general manager Jason Calacanis does at his personal site, “this is gonna end badly.” Or as blogger Dave Winer wrote simply about the same news: “Oy.”

But real bubbles involve massive amounts of public money, with the uninitiated (famously represented by Joe Kennedy’s stock-tip-giving shoeshine boy) pursuing the unrealistic. So far, at least, the current round of hype involves much lower numbers than the 1990s madness, and no initial public offerings of the sort that could shame Wall Street forever, if Wall Street knew the meaning of shame.

The biggest deals to date, including NewsCorp’s $580 million purchase of MySpace as well as the Google-YouTube hookup, are also very different from classic dot-com disasters. Then, the motto seemed to be, “Build it and they will come.” The fact that people could buy pet food or greeting cards online was taken to mean that they would, soon, in numbers sufficient to justify enormous investments in startup companies.

Now the real money is aimed at companies that already have large numbers of users. We know that people flock to social networking sites, and that roll-your-own Web video is a hit. Loyalty to given brands, not to mention profitability, are still open questions—but these are actual user communities, not just concepts. Today’s motto is: “Build it quick, because they’re already here.”

There is a certain logic at work: the Internet, for all the craziness of its bubble era, is a very real and important addition to the global economy. Back in the days of Webvan, a lot of us argued that Webmania was more akin to the railroad bubble of the 19th century, which ruined investors but helped finance the build-out of an important new technology, than it was to the famous Dutch Tulip bubble, which put huge valuations on flower bulbs, of all things. To some degree, Web 2.0 is simply using the technology that the last bubble built and popularized.

That doesn’t mean the bad deals are not coming. As Scott Rosenberg, the cofounder of Salon and author of the forthcoming book, Dreaming in Code, put it at his Wordyard blog, the danger comes as the YouTube deal “gets turned into a valuation yardstick by hungry also-rans and competitors….If and when people start investing on the basis of such logic, we’ll know that the awful era of TheGlobe.com has truly been reborn.”

Have no doubt: Money will be wasted, hucksters will huck, and suckers will bet wrong; bad companies, dumb ideas and me-toos will get funded. But I see things working out differently this time, given the armies of real users that today’s applications serve.

Besides, the last generation of burned investors must have learned something from the experience. I mean, it’s not as if they all went out and created a new bubble in housing or anything.

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