TechCrunch on Web 2.0 Companies

Michael Arrington, who edits TechCrunch, has written a post comparing the "Web 1.0 Implosion" that started in 2000 to the current speculation on Web 2.0 companies. Although there have been numerous failed companies, he argues that these failures are not "evidence of a bubble about to burst … it’s evidence of a market that is working exactly as it should." He also says that Web 2.0 companies succeed not because of their technology, but because of their community:

"The Network Effect is still the most powerful force driving Internet success today. People don’t, for example, go to Digg because it has great software. The original Digg, as launched, cost Kevin Rose less than $2,000 to create. Anyone can create a Digg clone, and many have. The reason Digg is, and will continue to be, successful is because of the community it has created. People go to Digg because everyone else goes to Digg, and every new user who submits stories and/or votes occasionally adds value to the whole network. The Network Effect is also driving Facebook’s success, and YouTube’s. None of these companies have interesting software. All of them have an incredibly valuable community. All of these companies have to work hard to keep their lead, but it is nearly impossible for new entrants to catch up."

Is Michael Arrington’s analysis correct? Is the community what made YouTube worth $1.65 billion? Of the hundreds of web 2.0 companies out there which ones will be successful and why?