Web 2.0: Why it's all about Google

SAN FRANCISCO (Fortune) -- For a couple of years now, Internet-industry cognoscenti have cringed at the expression "Web 2.0". It's one of those catch-all phrases that started with a fairly specific definition (more on that in a bit) but has mushroomed into meaning essentially anything the person who evokes it wants it to mean.

What became clear at the loftily renamed Web 2.0 Summit, held last week at a posh hotel in San Francisco, is that the frothiness of Web 1.0 has returned and that Web 2.0 really is all about "the Google" and how everyone else relates to it.

Talk of bubbles tends to get anyone inside the inflated zone really agitated. Yet the frothier the current situation gets, the more Net-industry stalwarts protest that this new Net boom is different from the tragically departed Internet bubble of 1999-2000.

In fact, I haven't seen an event as frenzied, as exclusive - oh, let's just say it - as devoid of real news or fresh insight as the famous Robertson Stephens technology conference in early 2000. Investors literally hung from the nooks and crannies in the walls at that bubbly get-together, held a few months before the market peaked. At the summit last week, there was a giddy hunger in the eyes of executives from small and big companies alike, all wanting a piece of the action.

The problem is that there aren't enough pieces to go around. Precious few companies have gone public in the last few years because Google (Charts), Yahoo (Charts), Microsoft (Charts) or AOL (Charts) end up buying them.

But the reason they get bought is not because capital markets aren't receptive to IPOs - it's that the companies are more feature than business. Someone asked conference host John Battelle to name a Web 2.0 company that has succeeded as an independent company and all he could come up with was Google, founded in 1998, before the last bubbled inflated.

Web 2.0, by the way, refers to the companies generally founded after the last crash that use a series of software tools that allow individuals to manipulate what's on their screen.

The Web's first iteration entailed people going to Web sites, like Yahoo, to see what was there. Second-generation sites, like YouTube and MySpace, let users contribute their own information and then change it. That's the revolution in a nutshell.

Speaking of Google, it is striking how three years into full-on Googlemania - dating arbitrarily from, say, a year before Google's August 2004 IPO - the search-advertising company remains either the primary subject anyone wants to discuss or the elephant in the room on the topic of any other discussion.

AOL's Jonathan Miller talked about how only Google was in a position to purchase YouTube. Yahoo's David Filo endured questions about how his company can possibly compete with Google.

NBC's Beth Comstock professed the broadcast network's willingness to work with Google - while expecting to get paid by Google and others for the use of its programming.

Microsoft demonstrated a nifty photo-viewing site. But the demo was classic Microsoft: a highly produced and choreographed display of technology that's not yet available to users that drew the inevitable comparison to how Google would have debuted a similar product, as it did when it turned Google Earth loose on a delighted public.

There's good news if you're a bubble conspiracy theorist: Odds are you haven't been able to invest in this one. The companies whose shareholders have benefited enormously this go-round include Web infrastructure companies like Akamai (Charts) and Cisco (Charts) as well as old-media companies that aren't getting right by the Internet, including Comcast (Charts) and News Corp (Charts). (See "The Boom Is Back," our prudent approach to investing in this craze from earlier in the year.)

The lot that will get burned in this bubble are the venture capitalists who are throwing their investors' cash at the 90th video-sharing site. VCs losing money is nothing to get upset about. That's their job.

-----------------------------------------------

How Google and the Web turn failure into success

Chaos by design