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A few weeks ago I read a headline about how Web 2.0 was going to crash and how it was going to be worse than the .com bubble crash. While I didn’t put any stock into it at the time, I’m thinking about it again. I’d like to take a moment to explain why Web 2.0 likely won’t crash harder than the .com bubble.

It’s the money stupid.

There were literally billions in venture capital being tossed around during the .com boom. All you had to do to get money was register a domain name. Therein lay the problem. One morning everyone woke up and like most people out on a binge, realised they’d made a mistake and all tried to pull their money out as fast as they could. Hence the start of the crash.

This time around, many of the VCs remember the experience and are looking for solid business plans this time around. A good URL is great, but if you can’t generate money from it, it’s just the equivalent of a barren plot of land. Based on that alone, we would have a much softer landing should the Web 2.0 market crash. But that’s not the only thing that has made the Web 2.0 revolution different. This time, rather than trying to attract advertisers to the Internet, the advertising money was already there.

Money is what makes a boom sustain. Without money underlying market growth, you’re just begging for a disaster. The entire .com boom was based on the idea that there was going to be money. This time around, the advertisers were already pouring buckets of money into advertising before things really started rolling. This created the solid underpinning that the next boom required.

Now what?

So are we in for sustained growth? A crash? A decline? More boom?

Well there’s some good news and some bad news on this front. Here’s the bad news. Since the .com crash, our industry has lost its golden-boy status. Nobody’s going to be throwing money your way just because you have a good idea. You’re going to need solid business fundamentals and a lot of convincing to get funding this time around. That means that our market is going to be vulnerable to all of the same types of risks as other industries.

Here’s the good news. We’re only going to be vulnerable to all of the same types of risks as other industries. We don’t have a built-in crash mechanism this time around since everything is being based on sound business decisions rather than the roulette approach people took last time. So we will likely cycle in relation to the rest of the economy, but because of the vast amounts of money already flowing through the web, there’s a huge buffer to any dramatic crashes.

So that means…

It means we’re not crash proof, but we’re certainly not setting ourselves up for a crash either. Mitigate the risks the same way other industries have. While we are working in a different world, the stable base we’re now working from has allowed us to model ourselves upon traditional business models much more than ever before. The road is not without it’s perils, but at least there is a road now.

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