The Next YouTubes

After Google's deal, dotcoms are bubbling hot. What you need to know about Web 2.0.

Vignette StoryServer 5.0 Sun Oct 15 21:32:25 2006

For
budding internet entrepreneurs, the moral of Google's $1.65 billion
purchase of video start-up YouTube is simple: Build a real, functioning
company, then sell it to a bigger one. During the dotcom bubble of the
late 1990s, garage innovators could peddle imaginary businesses in
initial public offerings. If an idea seemed as if it might make money
someday (remember Pets.com?) that was good enough. Today's upstarts are
more fully formed and are often led by wealthy veterans of the first
boom. They know Google's not the only shopper. Yahoo! has spent close
to $100 million for start-ups Flickr and Jumpcut, among others.
Facebook may be next, with Yahoo! said to be mulling a $1 billion
offer. With investors on track to inject $500 million into new Net
firms this year--twice last year's total, according to a Dow Jones
VentureOne report--this may be the start of a golden hunting season.

There
are more than 1,000 start-ups--referred to these days as Web 2.0
companies--using a new set of tools to quickly and cheaply create sites
and services that would have taken years--and millions--to build in the
'90s. Many are communities for sharing links, photos and videos. Others
focus on music, travel or online software. One challenge is knowing
when to sell. MySpace was sold last year to News Corp. for $580
million, a figure a MySpace founder who no longer had control of the
company recently called "one of the largest merger-and-acquisition
scandals in U.S. history." MySpace might be worth more than $3 billion
today. YouTube gained first-mover advantage with its video-sharing
service. But the latest crop of Web 2.0 outfits employs varying
strategies to cut past the crowd.