Web 2.0: An Entrepreneurship Bubble?

I guess today is a banner day for cross-posted commentary on Web 2.0!

Peter Rip at Leapfrog Ventures wrote a very insightful post on how Web 2.0 is an entrepreneurship bubble–too many similar companies thanks to a lack of barriers to entry.

To some extent, I agree, but I also feel that lowering the barriers to entry is ultimately a positive for entrepreneurs and the world as a whole. Here is what I wrote:

Peter,

Your post is extremely insightful–it does an excellent job of highlighting the differences between the current bubble and the last one. However, one thing which I think it doesn’t take into account (and I can understand how difficult it is to stuff more than one thought into a post and keep it coherent–a problem I face all the time) is the fact that lowering the barriers to entry and cost to serve actually increases the size of the pie.

When product development becomes dramatically cheaper, it becomes possible to serve new markets that the older, more expensive approach could not. There are certainly more AJAX calendars being developed than the market could ever support, but that’s a case of entrepreneurs who lack imagination.

If entrepreneurs avoid the pitfall of the last bubble (pile into whatever is hot and hope to get bought–see the Webmail wars of Web 1.0), they will see that the entrepreneurship bubble allows them to profitably serve niches that a venture-funded organization could never target, due to the need for a larger liquidity event.

This to me is the true power of another hideously overused cliche, the long tail. That is, instead of launching yet more broad social networking applications, entrepreneurs find specific niches that are completely unserved and cure those pains.

It may not build billion-dollar companies, but if you don’t need VCs, you don’t need a billion-dollar exit.