News Analysis: Crash 2.0?

Article excerpt

As with the first dotcom boom, the web is awash with money, fuelling fears of a similar conclusion.

No sooner has web 2.0 started gaining momentum than digital doom-mongers are warning that the dotcom bubble could be about to burst, again Concerns over 'crash 2.0' centre on the huge amount of investment pouring into the sector, creating an environment in which too many companies are chasing too little advertising revenue.

Last week, Maurice Levy, chairman and chief executive of Publicis Groupe, one of the world's biggest marketing firms, became the first to openly question the rocketing valuations of web companies. He likened the growth of those whose business models depend on the expansion of the online advertising market, to the dotcom crash that rocked stock markets almost a decade ago.

'Everyone is seeing advertising as the manna,' he told delegates at the Monaco Media Forum. 'Far too many are building plans based on advertising and they may well be disappointed because there is not enough money for everyone.'

Talk of a second dotcom bubble has been fuelled by a flurry of web 2.0 acquisitions in the past two years, with media owners jostling for supremacy in the digital space.

Most recently, Microsoft announced its dollars 240m (pounds 117m) acquisition of a 1.6% stake in Facebook in a deal that values the social networking site at dollars 15bn (pounds 7.3bn). In October last year, Google snapped up YouTube for dollars 1.65bn, while Rupert Murdoch's News Corp splashed out dollars 580m on MySpace in July 2005. 'Some of these valuations bear little or no resemblance to reality,' says Andy Hobsbawm, European chairman of Agency.com. 'It will be challenging for anyone to see a return on so much investment.'

Price of popularity

The huge price tags are testament to the growing popularity of sites dedicated to peer-to-peer communication. Facebook has more than 29m monthly unique users globally, compared with 77m for MySpace and 103m for YouTube, according to the latest figures from Nielsen Net//Ratings. Despite this, few of the web 2.0 heavyweights have managed to effectively profit from their audiences through advertising.

Facebook has only just launched a commercial service providing brand-owners with targeted marketing opportunities, while MySpace is struggling to achieve scale and YouTube's advertising offering is still being trialled. 'High web 2.0 valuations are linked to huge audiences and long dwell-time,' says Guy Phillipson, chief executive of the Internet Advertising Bureau (IAB). …