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Technology

Web Boom 2.0

Part I - The d�j� vu factor

December 13, 2006

Part one of a two-part series by internet writer Joanna Pachner that examines the latest surge in interest around the internet and social networking sites. In Part 1, she looks at the similarities between the current boom and the "dot-com bubble" of the late 1990s. In Part II, she investigates the different causes and symptoms of the latest bout of digital fever.

I first heard about The Startup at a weekly dinner of San Francisco writers held at a faux-bohemian caf� in the city's Mission District.

The few conspiratorially whispered details were tantalizingly vague: Mega VC money; top people from Yahoo! Involved. It was to be a "web play" with some kind of editorial focus, but everything else was revealed only to a select few bound by the secrecy oath of a non-disclosure agreement.

"The Startup needs an editorial director," an acquaintance breathed in my ear. "Think you'd be interested?"

Interested in what? , I thought, but felt a surge of excitement. The very scarcity of information lent the venture credibility. This, after all, was the spring of 1999, the height of digital fever, when internet companies went from bar napkin scribble to a pre-IPO, e-commerce-enabled B2B solution in a matter of days.

A few months later, a New York Times Magazine exclusive revealed the mysterious venture as user-product-review website Epinions.com, an example of that era's super fast-track, "ready, fire, aim" web launch.

Unlike most startups from those days, Epinions is still around - though it's now but an arm of Israeli giant Shopping.com. Although I didn't jump at that opportunity, I stayed in California until the great digital wave crashed. I got away unscathed, but for those whose careers and retirement portfolios are still recovering from the dot-com meltdown of 2001, the current hoopla around internet ventures such as MySpace and YouTube can bring back post-traumatic flashbacks.

Oh, this time around it's different, you hear: This is Web 2.0, with smarter ideas riding on time-tested technology and with actual people flocking to the sites.

There is much truth to that. Yet how can you not think "d�j� vu" when you consider these parallels?

We're in the money

On Oct. 2 this year, the Dow Jones index reached the peak last attained on January 2000 at the height of the so-called "dot-com bubble" - and kept right on going.

While much of that gain has been driven by energy and natural resource stocks rather than tech this time around, Google's blockbuster IPO reminded many of Netscape's similarly seminal public offering.

As then, our economy has been purring for years, and not just in Alberta. The current slowdown is being driven by manufacturing industries (which also had a rough ride in the '90s, with layoffs and fears of jobs going overseas). The service sector, including technology, is doing fine, assures Statistics Canada. The Ottawa area, Canada's digital valley, has just seen the number of people employed by high-tech companies surpass the high point of early 2000.

Huge expectations for tiny ventures

Open the business pages and there they are: Tech deals involving massive amounts of money being paid for companies with minimal revenue and zero profit.

First, News Corp. spent more than half a billion US last year on MySpace, when the teen networking site was reportedly pulling in less than $20 million US in revenue. Then Google bought video-clip sharing site YouTube for a stunning $1.65 billion US.

Still, it's the smaller fish that really raise eyebrows.

Business Week reports that Digg.com, a community news site you may have never heard of and whose revenues are estimated at a measly $3 million, is being valued at $200 million.

The first wave of digital entrepreneurs promised investors that if they got the money to build it, users and advertisers would come. This time, the hyped sites already boast impressive traffic; what investors are asked to believe is that those numbers will grow, and translate into cash.

The promises didn't pan out the last time around and there is reason to doubt the staying power of the current stars. According to Fortune, MySpace is still losing money; worse, its traffic numbers have swooned as fickle teens seek cooler online hangouts.

Everyone's piling on to the bandwagon

Portals and news sites - that's where most money went during the first boom. People in the dot-com game used to talk about "content" like it was mattress stuffing: "The site's up, now we need some content."

Today, the key buzzwords are social networking, blogs and wikis, all of which essentially mean that users are recruited as free contributors and collaborators.

Yet one thing is the same: Once the bandwagon starts rolling, everyone hops on, be it big media, big dot-coms or venture capitalists. Many Web 2.0 boosters are slapping the label on any site drawing traffic, when in fact the term describes a new type of web technology and approach (for a good description of Web 2.0, read this: www.oreillynet.com/pub/a/oreilly/tim/news2/2005/09/30/what-is-web-20.html). As with all bandwagons, when they get overloaded, it's trouble for everyone on board.

Youngsters with cash

You don't hear of as many teenage millionaires, but the difference today is only about a decade in age. The new success stories are 20- and 30-somethings — many of whom made a bundle and learned some lessons in the first boom.

When YouTube's co-founders announced Google's buyout in a video posted on their site, their earnest, goofy youthfulness (they're in their late 20s) immediately reminded me of their '90s predecessors. Indeed, if there was one thing that defined the Bay area back then, it was the keeners with the contagious desire to build things.

However, these similarities are ultimately skin-deep. The current digital fever has different causes and symptoms than the last one - see part II of this feature on CBC.ca next week.

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