Six years ago, those of us in the Internet industry saw a massive collapse. It was created by a huge influx of money into any company with a .com in its name as VCs hoped to take companies public based on their number of users and brand awareness rather than their basic business fundamentals. This was the Bubble.

The Bubble, of course, burst in 2000, as the companies that weren’t lucky enough to IPO were abandoned by their respective VCs, so they could no longer make payroll and had to lay off thousands of tech workers, mostly in the San Francisco Bay Area.

And now, six years later, we’re in Bubble 2.0. The VCs are back, the money is back, the jobs are back, and the baseless valuations are back. How do I know it’s here?  10 simple reasons:

1. There are 50 video sharing sites. How many do you need?
   
2. Venture capital investing is at its highest level (in dollars and number of deals) since 2002. In Bubble 1.0, this was exactly what happened. The VCs poured as much money as they could into companies to make them grow, so they could try to take them public, cash out, and move on. Companies back then were valued by the number of users they had, so any site with a lot of users could go public, whether they made money or not. (Webvan.com, Kozmo.com, etc.) The big difference this time around is that VCs aren’t trying to take companies public because the public and investors are still gun-shy after having been burned in 2000, so now the VCs are just trying to sell the companies they create to larger companies. Not a bad plan, as long as you can find a larger company that thinks you’re worth it.
3. Wikipedia claims there are 89 social networking sites “of note.” I’d argue that less than half of these sites are really notable, but my bet is that at best 20 of these will still be in business 3 years from now, when the VC dollars dry up and the popular ones have all been purchased by bigger companies. The vast majority of these sites just aren’t making money.
4. This site.
5. A site that is a fraction of the size of MySpace thinks it’s worth 3 times more.
6. Industry pundits are valuing sites by the number of users again rather than their ability to earn money
7. Youtube. As Mark Cuban notes, they’re giving stuff away for free, in this instance, server space and bandwidth. Further, much of their popularity rests on the illegal sharing of copyrighted content which is, in large part, what you’ll find on YouTube. At some point, perhaps after YouTube turns a profit, the RIAA and MPAA are going to go after YT the same way they cracked down on Napster. And what I consider the final nail in their eventual coffin is the fact that they’re a commodity. Anyone with some storage and some bandwidth can provide the exact same service as YouTube – the YT user experience just isn’t enough to differentiate them from any other video sharing service. Is there much reason to keep using YouTube now that MySpace, Google, Yahoo, AOL, MSN, and dozens of other sites all offer the same service? If YouTube is lucky, they’ll pull a Hotmail and sell before people realize this. If Hotmail had stayed independent, do you think they could have kept paying their email hosting bills? Who would know more about how little real value exists in a site that provides a commodity service for below cost than Mark Cuban himself?
8. Shopping aggregators (and other aggregators) will help people find the best prices across sites, and users will become increasingly loyal to the aggregators and not to individual shopping sites, be they for tickets, travel, or any other non-niche items. This consolidation will push many e-tailers out of business, contributing to the bursting of the bubble. Mind you, this is a good thing. It’s capitalism at its best – the businesses that can’t compete will fall by the wayside.
9. Napster still can’t get it together.
10. Netscape.com is back. It’s user-driven. It still sucks.