Getting outside the frothy bubble

Thanks to Geek and Poke for the cartoon.

When I was eating sushi and chatting with Jeremy Wright, CEO of B5 Media, and Don MacAskill, CEO of SmugMug, Don, at one point, pointed out that SmugMug had 150,000 paying customers and was profitable. I answered back “oh, I guess you aren’t a Web 2.0 company then” and we all had a big laugh.

But that laugh has been bothering me. Comedy works best when it’s reflecting a truth no one wants to admit in public. I’m noticing something in the valley. The newer companies are struggling to get noticed. Are struggling to figure out how to get outside the TechCrunch/TailRank/TechMeme/Reddit/Digg/Slashdot/Om/Scoble bubble.

I’ve been awfully cheery of late, but I’ve been comparing traffic notes with bloggers, journalists, CEOs, and other geeks and there simply isn’t that big a pool of traffic out there unless you can get some hot search term on Google or Yahoo.

Hint: what’s Jeremy’s most profitable blog? It ain’t about Ruby on Rails. It’s about Lindsay Lohan.

The thing I’m noticing is that outside the valley most people use search engines to find things. Google, Yahoo, AOL, MSN, etc.

How strong is that? Well, insiders tell me that one of the top search terms over at Yahoo is actually “Google.” And one of the top search terms at Google is “Yahoo.”

Why is that? Because most people outside the little tech bubble we live in every day don’t know how to use Web browsers. They have been trained to use the search box.

Not many people are talking about how to get outside of our little tech bubble. At least not in public.

But Joe Kraus, CEO of Jotspot, let slip that he’s hired a person who is just analyzing how good their keyword advertising is working. He wouldn’t tell me his favorite Google keyword. Why not? Cause that’s how he’s going to escape the bubble and provide a return on investment for his investors.

I wish we had a conference on “how to find customers outside of the tech bubble?” The entire industry could use some creative thinking there.

Other things that are catching my eye on this topic this morning? Renee Blodgett wrote a post about “Web 2.0 out of control” and Paul Graham, VC behind “Y Combinator,” which is a grouping of companies in the Web 2.0 space pulls out his best Richard Nixon impression in a TechCrunch interview and says “this is not a bubble.”

Of course it’s a bubble, but it’s not bubble 1.0 (actually, I’m agreeing with Paul’s interview, he did say it’s not a financial bubble).

Kraus, again, told me last week that “it’s a bubble.” He should know. He cofounded Excite at Home, which was one of the biggest companies in the last bubble. But, he detailed the differences in bubble 1.0 and this bubble.

First, retail investors are not involved. Translation: your mom and dad can’t buy stock in any of these Web 2.0 companies so they won’t be hurt this time around like they were last time. Web 2.0 companies aren’t going IPO. They aren’t getting big.

Second, the amount of money involved is still small. Yeah, the company I work for got $5.5 million. Digg. A couple of million. And so on. But you aren’t seeing the total pouring in of capital without any oversight like last time around. I disagree with Graham that stupid things aren’t being invested in, I’ve seen a few.

The capital being invested today is being done by professional investors who keep a great deal of oversight on their money, Kraus says. He also points out that these are people with billions under their watch, so $5 million invested is like when you or I go into Las Vegas and put $20 down on a Blackjack table. Yeah, it bothers us when we lose it, but it doesn’t really hurt. Patrick won’t go hungry if I lose $20.

So, what kind of bubble is it if it’s not an investment bubble? It’s a froth bubble. MacAskill has a post titled “Flickr doesn’t suck” where he details some of the froth. The biggest businesses, or the most profitable ones, don’t always get the PR and attention. Heck, working at Microsoft, I learned that in a pretty deep way.

It’s getting harder to pick good ideas out of the froth. Why? Cause there’s so many more things coming at all of us. Look at some of those Web 2.0 lists. They are hundreds of companies long. I remember back when blogging started taking off. The entire industry fit into one coffee house in Mountain View.

So, how do we pop the froth? I don’t know. I’m trying to listen to people outside of Silicon Valley, for one. For two I’m trying to find companies that normal everyday people are interested in (ie, non geeks) and I’m listening to the grapevine to find companies that are making money with the Web 2.0 business models (dating site Plenty of Fish, for instance, is making their payroll with Google ads and doing darn well at it).

How can we detect the difference between real businesses and froth? How do you?

I do like Paul’s point of making things that you want to use yourself. That’s how I come at this too. I try to point out when I actually use something instead of just am pointing to it.

UPDATE: I agree with Dead 2.0, mostly. One thing, though. Web 2.0 is largely funded by advertising. Advertising is an AUDIENCE business. So, when Paul Graham is telling his companies to worry about building audience first, that’s actually a good point of view to take. It’s like building a magazine. If you don’t have any readers you won’t get any advertisers.