Web 2.0 companies connect one to many, about little or much, deliver it whenever and wherever, on whatever, to some or none.

Web 2.0 companies are delivering the infrastructure which was first disconnected, then it became more connected, and eventually it will seamlessly merge everyone’s connection for yet unknown functionality and value. That’s the next big app and web 2.0 companies are defining NOT INVENTING and delivering the functionality to achieve it.

I’ve been reading some interesting posts recently. And I gotta tell you they got me aggravated for a couple of reasons. Some high profile bloggers were blogging about web 2.0 bubbles and the difficulty those companies are having making sizable revenues. As always the form of the blog adds to it seeming smart and logical but this loop just doesn’t hold weight at all. It’s aggravating.

Here’s why. The entire loop of conversation from Dharmesh Shah to Don Dodge, to The Financial Times San Francisco based writer - Richard Waters (2)(3), misunderstands the value transfer occurring from web 2.0 companies to users and the requirement to be served some of these functions now and some later and so on. And that says they misunderstand the true nature of applications.

So few pundits could tell you the browser was the new desktop, equally few can tell us now how the pieces of web 2.0 functionality and applications will coalesce and aggregate. But one thing is for sure – web 2.0 functionalities WILL coalesce and aggregate and integrate! And the aggregation and integration of numerous of the functions and methodologies will produce revenues just as advertising did for search. From an application point of view there’s nowhere else to go.

That is what is happening right now. Viable hardware connectivity both wireless and wired is providing this new channel that will be a primary delivery device for probably all forms of communication. And no one is going to use the operating system, and soon no one is going to use the browser.

Like the IPhone – there will be an interface which you do everything from – call that an O/S – but when all it has is personal connectivity and functionality it ceases to be seen that way. So who will be the providers then? Google will be a big player, Microsoft will, IBM will, Verizon will, and in their domains Boeing will, and Federal Express will, and so on and so on. Are all of those guys going to build these same functionalities? Won’t many lease platforms, or buy companies, or seek delivery from their friendly vendor behemoths? Where’s all that stuff coming from?

Web 2.0 is about rapid low cost delivery of narrow applications and functions that do stuff for users now. The costs to get there are modest compared to prior periods; the costs to scale should investors support the endeavor are ordinary. Of course the functionalities that are bleeding edge, that are common, that are narrow or wide, and on and on, will be THE desktop – on multiple devices and platforms – tomorrow. Is that not obvious?

Of course the desktop of any device will be occupied by several behemoths that obtain their size from genes or acquisition of 8-15 web 2.0 companies, or maybe 20-30 of these technology slivers, some big and some quite narrow. So if 12 behemoth guys eat up say 12 web2.0 companies each, that’s 144 right there. If 1 out of 4 seek that exit that’s almost 600 companies worthy of chasing the golden banana. If there’s just an error rate of 15% that’s 700 seekers! If there’s room for 700 funded companies and 1 out of 10 companies that chase venture capital actually get it – then there’s 7,000 web 2.0 companies out there. But that makes sense – it is NOT A BUBBLE. Go2Web2.0 report site postings of 2,445 web 2.0 logos as of May 30^th, 2008. Maybe there’s room for another 4,500 logos too.

Now as to the venture capitalists. They have incredible expertise of company formation and management if things go right. Yet unfortunately the one trick pony they ride into town includes decimating the endeavor if their attempt doesn’t succeed in the timeframes related to the size of the investment/bet. At the end of the day their selection criteria and success rate as an industry and the high payout they must provide to attract funds for such uncertain futures means that as educated and expert as they may be at best they are bettors. The larger they are the more they can push but at the end of the day they don’t’ control the applications nor the demand for them and the time in which it will take the market to get to them. Having said all of that the poor selection and management exhibited by venture capitalists means that many bets have to be made promoting the expansion for possible providers. This is healthy and valuable. However the payer is not the venture capitalist – its is, and always has been the entrepreneurs.

So Don, Dharmesh, and Richard, take a hike. No one that’s developing the next big thing wants to hear about your bubble bologna.

Thanks to Corrine Wyard and Alex Magary for reading drafts of this..