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Speaking to journalists in Belgium last week, Bill Gates warned against the rush to new web-based software service, and compared this to the doomed 1990s internet bubble.

Google's deal to pay $1.65 billion in stock for YouTube, an online video company that has yet to turn a profit, has led some commentators to revive talk of an internet bubble.

We've always stopped short of calling it a bubble, for a number of reasons, but certain recent funding rounds are making us reconsider our stance...

Gates told reporters:

"There are a hundred YouTube sites out there... It's very complicated in terms of what are the business models for these sites."

"We're back kind of in Internet- bubble era in terms of people thinking: 'O.K., traffic. We want traffic. We want traffic. There are still some areas where it is unclear what's going to come out of that."

While Gates has a point, in that many Web 2.0 startups are overly reliant on the ‘get scale, get acquired’ maxim, the latest internet boom is built on foundations that are far more solid, when compared to the dial-up era 1990s.

Consumer internet behaviour has now caught up with previous forecasts and valuations are rooted in reality – startups now tend to sell themselves to bigger firms, rather than relying on the over-hyped stock market flotations of yore.

That said, Bill Gates has a point about business models. There is more to creating a successful online business than just having some cool technology – the challenge remains figuring out make money from the people visiting your site.

By contrast, Y Combinator founder Paul Graham believes that web startups shouldn't worry too much about business models.

Do you think we're in a bubble?

Graham Charlton

Published 13 November, 2006 by Graham Charlton

Graham Charlton is the former Editor-in-Chief at Econsultancy. Follow him on Twitter or connect via Linkedin or Google+

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