Web 2.0: A snake eating its own tail?

Steve Rubel perceptively points out a risk factor in the burgeoning Web 2.0 economy: Startups are depending on advertising from other startups. As he notes, this was one cause of the dotcom crash in 2001. When one set of startups failed, the impact cascaded onto other companies (including more established players like Sun and Cisco) that had become dependent on their revenues.

The positive sign for today’s generation of startups (or at least, some of them!) is that big companies are starting to grok the value of the collaborative, user-generated activity that many Web 2.0 startups facilitate. That’s something we’re definitely seeing at Supernova. The established companies are justifiably hesitant to throw money at new platforms without good data to justify the experment, but that’s starting to come in.

Of course, this doesn’t mean that most Web 2.0 startups will succeed. Most startups fail, whether or not they are part of a catchy trend. And the fact that some Web 2.0 startups will cross the chasm to mainstream advertisers will say much more about those companies than it does about the catchy trend.