Rising Dead Pool Indicates Web 2.0 Bubble is Popping

The Web 2.0 "bubble" - where a thousand ventures can bloom and thrive - is starting to pop. In the last few weeks the number of startups to go belly up or teter on the brink has increased. TechCrunch is my yardstick for all things Web 2.0. Let's take a closer look at some hard data.

In all of Q4 2006 TechCrunch wrote about six companies/products entering what Michael Arrington calls the Dead Pool. These include Audioblogger (October 4), LiveLocker (October 16), Odeo (October 25), Shadows (November 22), Google Answers (November 29) and RawSugar (December 30).

Flash forward to 2007. In just January alone, already we have seven companies and products that have been sacked or are "in the grasp." These include FilmLoop (January 6), Browster (January 7), Insider Pages (January 7), Judy's Book (January 9), Findory (January 14), BitPool (January 19) and Performancing (January 22).

So, does this mean that Web 2.0 is dead? No, but what we have already is a clear winnowing thanks to supply and demand.

Startups are launching by the boatload and getting funded too. Every day I get emails about a dozen of them and I read about another two dozen more. These days it's cheap to start an online venture. Digg launched for $200.

However, with the IPO market closed, almost everyone has two end games - grow through advertising or get acquired by Google, Yahoo, etc. This is creating an environment where there's far more supply than demand. The number of startups launching way outweighs the number of acquisitions. Further, advertisers are timid when it comes to spending on unproven startups. They've been burned before during Web 1.0. So while money is shifting from TV, it's going to larger players.

Web 2.0 is definitely here to stay. The tools overall empower people to do what they have been for thousands of year and that's express themselves. Soon it will invade the enterprise too, as CNN noted earlier this week. However, already in 2007 the shakeout seems to be underway.

Comments

[Brian Clark]

>>>grow through advertising

The key is to change this particular end game.

I would love for you to explore other business models with Micropersuasion, Steve. It would really bridge the gap over to the people who view the Internet not as an advertising medium (that people hate) and more of a direct selling medium (if handled correctly, that people love).

I like the new look, btw.

[noah kagan]

I think of this popping more as the tide washing away the debris and or just foam on a latte. The fair amount of "me 2" or "adsense" based companies can't last forever. Regardless, these are still exciting times.

[Brian Solis]

I think the rising dead pool indicates the bursting of the bubble for applications that were nothing more than extensions to other solutions in the first place. In that regard, many web 2.0 companies were nothing more than trendy online shareware applications.

But make no mistake, the end of 2.0 will relate more to foolish investments, a proliferation of lame business ideas, and premature IPOs, 80% of which haven't yet reared any signs of doom. There are a lot of lame ideas out there currently though.

There is a 3rd option for them too. They can also generate a winning business idea and grow it through paid support. sitekreator.com, freshbooks.com, smugmug.com (which is more 1.0, but is now technically 2.0) and thinkfree.com, are generating revenue and continue to grow by leaps and bounds.

I just think there's more to this story than simply using TechCrunch as a metric for the lifespan of real 2.0 business leaders.

[Max Kalehoff]

Steve,
Here's another proxy: I won't name names, but the number of Web 2.0 companies calling me for rapid consulting on their ad-sales strategy has been skyrocketing since late December and into January. Yes, the reality of making a buck at the end of the day hits even Web 2.0.

Do you want to know where the biggest fallout will be? Video.

Max

[Anonymous]

Maybe someone here can answer this question - is it possible to start a web company in this day and age without being labelled as Web 2.0? If yes, then can anyone point me recent non-Web 2.0 startups? If no, then why not just call them web companies?

[Louis Gray]

Steve, I'll take the contrarian approach here. I don't believe that any bubble is popping. It's been long said that 9 of every 10 start-ups fails. During the 1990s, the failure ratio decreased to maybe 3-1, and in the last year or two, it has likely been closer to 6 or 7 to 1. (SWAG)

That some Web 2.0 companies are closing shop isn't any more significant than seeing a local restaurant or convenience store close. It's only more newsworthy because we live on the Web now, and because of any VC money that was involved.

Companies get funded. Some companies go on to be big successes. Some are smaller successes. Some close quietly, and others loudly. It's capitalism at work.

[Spud]

There has been plenty of sites built on the back of the Web 2.0 bubble. All competing for there share. In the end though only the creme survive and those with nothing much to offer lose out as is happening with the sites that are joining the "dead pool".

[ouriel]

Steve, what you are describing has more to do with darwinism rather than a bubble pheonemon where a whole ecosystem crashes because of inconsistent and unstainable economical foundation. Don t you think?

[franticindustries]

Add CrispyNews to the deadpool list. The company didn't go bankrupt, but the CrispyNews community service has been killed off.

[Paul Fabretti]

Scary stuff Steve, although I would argue that the bubble will only burst when the majority of readers start to post the story - i.e. in a couple of days!

As soon as this story hits DIGG, you can be assured that it will enter the conventional media, leading to senstionalist headlines about the demise of Web 2.0.

Whilst not actually true, stories like this are sure to make things appear worse than they are.

All we need is another boo.com (although Odeo and Performancing are not far off!) and it is curtains...or is it?

The point you make about DIGG being launched on $200 is crucuial to the survival of Web 2.0.

Everyone wants their 5 minutes of fame whether it be as a low-cost start-up or a prank on youtube which suggests there is always a future in providing people with a means to express themselves.

[mark]

you say that like it's a bad thing?!

[Peter]

ummm...the dead pool is not a swimming pool. it does not 'rise'.

[Andrew McMaster]

Something only "pops" when stupid ideas get consitently funded. 90% of the VC funded services I read about clearly will never succeed, but one YouTube like success for the VC's pays for a lot of failures.

Great ideas + great implementation + great marketing will never "pop"

[Informatikon]

Rising dead pool doesn't necessarily mean bubble - it just means that more and more people/companies try new things.
It would only make sense to call it a bubble if the percentage of failures is increasing.

[Jeremy Toeman]

I'm sorry, but money is most certainly not shifting from TV. Online and alternate media are certainly GROWING, but even the source you cite shows an increase in TV ad spends.

[Richard Giles]

Steve. Your yardstick is probably biased. I'm not disparaging Arrington, as I think his current reporting is great, but do you not think Techcrunch may be reporting more "deadpool" companies because Arrington decided he'd like to report on unsuccessful startups to balance his posts? He doesn't report on EVERY company.

It's also quite reasonable to assume that the longer a company operates, that its more likely to be added to the "deadpool." Simple probability. So the further down the road of "web 2.0" we head, the more companies will enter the "deadpool."

I'm not suggesting it's a bubble, or a bust (I think the jury is still out on both), but that you need a need yardstick for testing bubble or bust theories.

[Martin Wells]

By any reasonable definition web 2.0 is not an economic bubble. It's just a very active area of investment. Some will fail, some will succeed, but there is no material risk based on rational exuberance. The facts are not there to support it.

[Josh]

I think 2007 will be the year of the great purge in web 2.0.

Useless services, copycats, and non-innovators will close their doors because people are sick of them. Truly innovative sites with a bit of traction will survive all this.

[Jeremy Pepper]

Well, I think the bubble popping is when companies and individuals drop their blogs, like the death of the Vespa blogs or you letting the registration of the Skin Cancer Blog lapse.

Then again, it seems against nature to launch a blog for an outdoor activity - what about launching meet-ups? - and the others death is just a sad statement about commitment.

[Alex Iskold]

Steve,

I think that a more precise way to put it is that we are seeing some reality checks. Bubble is the word we used last time, in the context of things being overvalued. There are no such things now, so its not the same thing that is happening.

Alex

[Mike Abundo]

Better a shakeout than a crash.