With the US economy on shaky ground, interest rates being slashed, and the real estate market in a serious slump, online companies have begun to wonder if there is a web 2.0 bubble burst just around the corner.
Everyone remembers the .com crash and burn of 2001, when many startups went under, and others struggled to survive through some economically tough times. With so much uncertainty about the U. S. economy, analysts are wondering if we are facing a new dot com slump. Even the all mighty Google.com has announced that it will lay off some employees, and many other big players in the industry appear to be tightening their belts, reducing costs and spending.
Overall though, web-based businesses appear to be faring better than their brick and mortar counterparts in the current state of the economy. Online Mega-retailers such as Buy.com, Amazon.com and Overstock.com have all done well during the first quarter of 2008. Even many smaller web-based businesses report “decent” earnings so far this year.
Contrast these reports with the financial woes of many off-line retailers who are struggling, such as Nordstrom, Macy’s and other high-end department stores. One reason why web-based retailers appear to be weathering the storm better is the perception that buying online is cheaper. In times of financial hardship, more consumers may turn to online retailers as a way to save a few bucks.
Likewise, with the price of gasoline hovering around four dollars per gallon, consumers may find it more cost-effective to shop online, rather than driving all over town searching for bargains. Whatever the reasons though, it is clear that most of the big name retailers online are proving more profitable than their off-line counterparts — at least for the time being.
However, there is some evidence of a “thinning of the herd” mentality affecting online business startups. One example of this is Mowser.com, a web service that translates web sites into mobile Internet versions for viewing on cell phones and other mobile Internet devices. Mowser is closing up shop this year after failing to raise funding for the expansion of their site.
Some analysts see Mowser’s problems as an early warning of a new web 2.0 bubble burst on the horizon. But other experts disagree, and point out that Mowser’s service falls into a niche that is gradually disappearing. They claim that the gap between the “regular” Internet and the mobile Internet is narrowing, so the market for Mowser’s Web translation service is shrinking on a near daily basis.
It is highly unlikely that there will be a dot com bubble burst anything like the 2001 version, though online businesses will certainly have to deal with the same economic challenges as off-line retailers in 2008. So far though, online businesses are holding their own, and at least weathering the storm, if not avoiding it altogether.
I’d say of course the economy is going to balance out. There are WAY too many companies trying to fill the same space at the moment, and at some point only a few of them are going to succeed. The rest of the ones that don’t get acquired by bigger players are going to go bankrupt.
For instance, there are 230000 social networks on Ning.com. Most of those will disappear as web2.0 becomes the standard instead of a buzz term.
Since the US market is leading the web2.0 race, it makes sense that it’s there the bubble will burst. European and Asian companies will probably also follow, but I don’t think the blow will be as hard. The global marketplace will probably even out a bit, during the next 5 years or so.
Then we’ll be ready for web3.0 - erasing the boundaries between the virtual and the ‘real’ world.
Comment by Carl-Johan Hunefalk — April 22, 2008 @ 6:37 am