The bubble that wasn't

Jason Calacanis, the mop-haired founder of Mahalo, an overfunded Web directory, is musing on Twitter about "tickers and rallies past" — a Proustian substitution of stock markets for madeleines. But what, exactly, does he have to be nostalgic for?

Web 2.0 was a bubble that never inflated — a shimmery illusion that popped well before we stopped talking about it. Precious few people got rich from the notions its proponents championed, such as user-generated content and social networks.

Calacanis was the only person of note to cash out on the blogging craze, selling a set of blogs to AOL for $25 million. That was a paltry figure in the grand scheme of things, but enough to set him up in a comfortable home in Brentwood and buy him a $109,000 electric sports car. And enough to make him a Web celebrity, with thousands of followers on Twitter and friends on Facebook — the quantifiable metrics of fame preferred by those who are not really famous.

The startups of the Web 2.0 era have proven similarly vacuous in their success. Skype, the Internet-calling service, sold for $2.6 billion to eBay in 2005; the auction giant wrote off $1.4 billion of that purchase last year. YouTube, sold to Google for $1.65 billion, is an acknowledged failure, with product managers scrambling to bedaub it with enough advertising to merely pay for its bandwidth bills. And the IPO market that powered the '90s bubble? All but invisible. The most recent big offering was in August for Rackspace, a boring company which hosts servers, and its stock has since fallen by half. With Wall Street on its knees, no one expects another IPO soon.

Will there be another bubble? Technology moves in cycles and is prone to investing fads, so yes, almost certainly. But there is nothing that looks set to inflate it. Cleantech, the next big hope of Silicon Valley, requires vastly more capital than Internet startups, and capital is now in short supply. (Falling oil prices, too, discourage the development of green energy.) While Internet users are devoting more attention to social networks, advertisers are staying away. Calacanis's venture, Mahalo, is a spiffed-up rehash of the kind of Web directory Yahoo built in 1995; he's now cooking up a new, secret project — which suggests that the loquacious entrepreneur realizes his original plan fell short. He may be onto something, if only in admitting failure. If this bubble fell short in making the likes of Calacanis rich, they have their own paucity of ideas to blame.