• The Economist, Friday, March 20, 2009 11:45 AM

Dotcoms are no longer making news with free new offerings. Instead, headlines these days are all about lay-offs and new pay-for services. Does this mean that the free online lunch is over -- again? Indeed, says The Economist, eight years after the dotcom crash, Web firms hoping to sell advertising against free content and services, find themselves in a familiar situation.

It all started when Google went public in 2004, inflating a new "Web 2.0" bubble. Google's ability to place small, targeted text ads next to search results made it an Internet juggernaut, and sparked new hope that there was indeed money to be made from online advertising. "The only reason it had not worked the first time around, it was generally agreed, was a shortage of broadband connections." And so the pursuit of eyeballs began again, with a new crop of Internet superstars like MySpace, YouTube, Facebook and now, Twitter. Each provide free services that attract large audiences, but none of them have yet generated substantial revenue. But that's OK, the thinking has gone, the same model worked for Google, after all.

Not so. As it turns out, The Economist says, the number of companies that can be sustained by Web advertising is much smaller than previously thought, and Silicon Valley may in fact be entering another "nuclear winter," as Web companies start laying people off, scaling back, and shutting down.

Read the whole story at The Economist »