Silicon Valley Strikes Again: Dot-Com Bubble Version 2.0?

ByABC News
October 26, 2006, 1:10 PM

Oct. 26, 2006 — -- With the Dow edging past 12,000, there's a lot of money floating around Wall Street these days. And, no surprise, the destination of choice for many looking to park their money is the Internet.

Many investors are looking to make a few bucks quickly by investing in companies whose stock price may suddenly jump -- the same sequence of events that led to the first dot-com bubble in the late '90s. And when Google laid down $1.65 billion for video-sharing Web site earlier this month, many analysts, venture capitalists and Web site owners likely experienced a slight feeling of déjà vu.

But experts have split on whether the big-bucks sales herald another another millionaire-generating movement in which an everyone has a chance at striking it rich, or just represents a bunch of rich folks making other rich folks richer.

"Right now, there's a buying frenzy for hot products for what's assumed to be the emerging audience for this kind of this stuff," explains Rob Enderle, president and principal analyst for the Enderle Group.

The deal for YouTube, a site with a huge audience -- 100 million video clips are viewed there every day -- but without a proven way to make money, was just one of several multimillion-dollar deals made over the last couple of years that suggest the dot-com bubble may be forming again.

Consider that last year social networking site MySpace sold to Rupert Murdoch's News Corp. for $580 million and that rumors are swirling around the Internet that the Australian media magnate is now attempting to acquire, a Web site that allows users to submit and rate news and information stories.

Forecaster and strategist Paul Saffo bluntly rejects the idea that we're in -- or about to enter -- a new bubble. Instead he contends that the recent megamillion mergers and acquisition deals for Internet properties are just part of a natural evolution.

"While [the marketplace] does have kind of a 'frothy' feel at the moment, that frothiness is well within the range of what we expect to see," says forecaster and strategist Paul Saffo.

"A lot of what you're seeing is what always happens: A bubble always precedes stability," he explains. "I think we're getting back to business as usual."

But there are other industry experts who believe it's way too soon to say whether or not there's a bubble, though the indicators exist.