After the Bubblin'

A decade ago, we emerged from the sudsy mess of its collapse into a nearly immediate rebirth. Expectations changed. Models went through taste tests. In the end, the capitulation of Internet stocks only bred the next wave of online operators, who finally got it right.

Fresh meat on the front line
You probably know many of the lucky survivors of the dot-com breakdown in 2000. I'm guessing that you rely on a few of them daily. Companies that adapted made it through, but the bust also opened the door for the next wave of Internet startups to revolutionize the way we connect online. Desperation often breeds innovation. 

Let me illustrate my point by singling out a few companies that weren't even around a decade ago:

• Twitter: Launched in 2006, the microblogging site has become a media darling for its ability to get celebrities, luminaries, and ordinary blokes like me to share perspectives in bite-sized morsels of 140 characters or less.
• Perfect World (Nasdaq: PWRD): One of China's fastest-growing online gaming companies was founded in 2004. Skeptics have been crowing about the restrictive government clamping down on the industry for years, but Perfect World expects revenue to grow 46% to 51% in the current quarter.  
• Facebook: The country's second-most-popular website didn't exist until Harvard sophomore Mark Zuckerberg and a few other classmates launched it out of their dorm in 2004. It now lets more than 400 million active users share status updates and engage with third-party applications.
• MySpace: A year before Facebook launched -- and a year after social-networking pioneer Friendster debuted -- MySpace made the scene. Eventually gobbled up by News Corp. (NYSE: NWS), it was the top dog in its field before being overtaken by Facebook.

You can now spend the day watching videos on YouTube and Hulu, sharing digital snapshots on Flickr, and powering searches through Microsoft's (Nasdaq: MSFT) Bing without stumbling across one site that was around to see the dot-com bubble burst a decade ago.

The Internet was too good an idea to fail. It simply needed to temper its exuberance, and to pioneer new models with metrics that made sound business sense.

Disruption always finds a way
I've been part of the Motley Fool Rule Breakers analyst team since its launch in 2004. I'm certainly not going to rank our growth-oriented newsletter service at the same level of the mainstream sites I mentioned earlier (though I think we can take on Friendster), but Rule Breakers does use the Web to create a superior experience compared to old-school newsletters:

• We deliver our monthly recommendations digitally, updating developments in real-time. I can't imagine ever going back to the days of untimely print newsletters, where postal delivery created a situation in which members didn't all have access to fresh picks at the same time.
• We have lively discussion boards, where every buy or sell recommendation is scrutinized out in the open by the community. Who needs retro investing newsletters, where the flow of information was always one-way?

The ability to stand on the shoulders of predecessors -- whether we're talking about digital newsletters improving on print missives, or Web 2.0 companies building on the foundation of their forefathers -- isn't just evolution. It's also a neat investing trick, if you know where to look.

You can't buy into Facebook or Twitter, because they're not publicly traded. However, you can buy into the philosophy that disruptive phoenixes do arise from the ashes.

Some of my favorite stocks shook up industries that were seemingly left for dead:

• The DVD market is cooling? Tell that to Netflix (Nasdaq: NFLX), now 12.3 million couch potatoes strong.
• No one is eating out? OpenTable (Nasdaq: OPEN) disagrees. It's reinventing the dining reservation process, integrating an electronic reservation book for restaurants into its free table-grabbing site for hungry diners.
• Music is dead? Tell that to Apple (Nasdaq: AAPL), which singlehandedly legitimized higher-margin digital delivery with the launch of its iTunes Music Store.
• Radio is kaput? Sirius XM Radio (Nasdaq: SIRI) is growing its audience of premium listeners, and the satellite-radio giant aims to add another 500,000 new subscribers this year.

In the end, calamity births opportunity. As a member of the Rule Breakers team, I have come to appreciate that the best growth opportunities come from the worst scenarios.

Don't believe me? Feel that the dot-com bubble was a permanent disaster? Feel free to let me have it on Facebook, Twitter, or in the comment box below. You may very well be proving my point.© 2010 UCLICK L.L.C.