Free AOL Stuff, Courtesy of Bubble 2.0
Don't look now, but the bubble is back. — Yes, it's 1999 all over again. Web start-ups are cropping up with names like Bebo, Squidoo and Moblabber. Start-ups like YouTube, less than a year old and unprofitable, are being sold for $1.65 billion.
Context & Ripple Effects
The warning signs were already on the record before this column ran: back in January 2006, Techdirt flagged a barely-any-revenue company expecting to IPO as evidence that "bubble time" had returned. What has changed by mid-November is the price tag attached to the thesis — YouTube, less than a year old and unprofitable, has just been bought for $1.65 billion, converting a columnist's worry into a closed transaction.
The Times' frame is that AOL handing out free stuff is itself a symptom: an incumbent that long charged subscribers is giving services away to stay relevant against a crop of free upstarts — Bebo, Squidoo, Moblabber — while analysts openly compare the mood to 1999. The story matters because it captures both sides of Bubble 2.0 at once: incumbents pricing toward zero and private markets pricing young audiences at billions.
First-order effects
- AOL is shifting from charging subscribers to giving services away, betting its consumer web business on advertising rather than access fees — a direct response to free rivals like Bebo and Squidoo.
- YouTube's confirmed $1.65 billion sale sets a fresh public benchmark for what an unprofitable, sub-two-year-old audience play can command.
Second-order effects
- Every portal and social network now competes against a valuation logic where audience size, not revenue, drives price — raising the stakes for Bebo and peers to grow users fast enough to attract their own buyer or funding round at comparable multiples.
- Incumbents that still charge for what rivals give away face pressure to follow AOL's move to free, compressing the access-subscription revenue base across the consumer web.
Third-order effects
- If the pattern holds, the industry re-runs the late-1990s dynamic analysts have flagged since early 2006: capital flows to unprofitable scale, exit prices detach from earnings, and a correction becomes a matter of when, not whether.
- The durable structural shift is toward ad-funded free services as the default consumer web business model, with incumbents like AOL restructuring around it rather than defending paid access.
The trend: Consumer web valuations are detaching from revenue as incumbents give services away and acquirers pay billions for young audiences — one data point in the return of bubble-era economics the trade press has tracked all year.