Thursday, March 1, 2007

This Time It's Different...

I keep hearing about how this time is different. There will be no repeat of the 2001 bust. The reasoning, as I understand it, goes something like this: we learned our lesson the last time, clear evidence of a business model is a prerequisite this time around, its cheaper to start a company now, so risk is more widely spread, and so on. However, all that VC money still has to go somewhere, and I see more examples of "irrational exuberance" than before. There are two classes of companies that I think are leading indicators of an overly lax investment climate:
  • Great products with no business model.
  • A feature trying to pass off as a product.
(The third class - "really bad companies" - is, unfortunately, a lagging indicator; whether a company belongs in this class or not is only clear after the fact)

Just in the last 24 hours, I came across two companies that fall into these categories. There are many more where this came from:
  • Virtual Ubiquity. They bill themselves as the "first real word processor for the web" and you have to love that chutzpah. Based on Flash rather than HTML, it's been getting rave reviews and it does look very cool. Check out the screenshots in the GigaOM post about them. Very cool product, but what's the business model? Paid subscriptions seem unlikely, given the number of free alternatives. An ad-based model is possible, but a tough slog given the difficulty of driving enough traffic to make it worthwhile. Interoperability with other online productivity apps will be an issue. Online suites will have an edge here, even with a smaller feature set.
  • Seriosity. Allows the creation of an email "economy." Everyone is allocated a certain amount of a virtual currency, and you can attach different amounts of your "money" to emails you send to indicate its importance. It's an interesting, though overly complex, approach to the real problem of information overload. But this is not a product - it's a feature. $6MM in VC funding to date.
Will it really be different this time around?