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February 01, 2007

Beginning of the end of Bubble 2.0

When Rajesh Jain sold off his online property (IndiaWorld) for Rs.500 crores to Sify in late 1999, lots of folks took the deal as a sign of beginning of the great Internet boom. In hindsight, the deal proved to actually represent the end - with no one else making remotely close to that kind of money in the Indian Internet space. Now, it looks like Google's buyout of YouTube is a signal of end of the Web 2.0 hype cycle ("Bubble 2.0") reports how 2007 has begun to witness emergence if trouble at "some big-money Web 2.0 troubles" (as against the bootstrapped start-ups).
Online video startup Guba is apparently on the block after its CEO resigned last month, according to GigaOm. This comes after Accel and Benchmark-backed MetaCafe's M&A travails. Browster, a browser startup supported with $5.8 million in first round funding from Advanced Technology Ventures, Vanguard Ventures and First Round Capital, has shut its web site down and refused to explain why. Not usually a good sign. FilmLoop, a slideshow startup that raised $7 million in first round funding last year from ComVentures, Garage Technology Ventures and GlobeSpan Capital Partners, has cut staff after failing to find a buyer, according to TechCrunch.

Which startups are next to fail? Odds are good that any advertising-based Web 2.0 startup you name is a candidate.

Plus, as KPCB's Randy Komisar points out in his interview to Venturebeat, the firm is largely staying away from Web 2.0 companies.
Web 2.0 can get pretty speculative– where you throw a party, and if people come, you get Google to monetize it for you [with Google’s Adsense ads]. Every so often a YouTube happens, and that really stokes the fire – some would-be entrepreneurs get the impression, to quote Dire Straits, that the “money is for nothin, and the chicks for free”.

I’m looking for more fundamental innovations. I’m less interested in the content and media fallout. There are no strong barriers to entry in Web 2.0.

...I’m not sure how long YouTube would have remained an independent business had they not been bought by Google. Google has an efficient search engine to monetize large audiences. If you’re creating Web 2.0 products and media, its tough to build anything of sufficient scale to remain independent — you are more likely to end up being a feature on Google, Microsoft or Yahoo. Google bought YouTube because they’re interested in where people are spending time online, and because they didn’t want anyone else to buy it

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.