Google's blockbuster announcement last week that it would pay $1.65 billion in stock for YouTube, an online video company that has yet to turn a profit, pumped air into the theory that another Internet bubble has inflated.

Certainly tech's new boom, which has been labeled Web 2.0 by some, has many similarities to the dot-com days of the late 1990s, when twentysomething millionaires rode their scooters through the corridors of short-lived startups and companies with little or no real revenues were commanding obscene valuations on Wall Street.

[Podcast: Wired Magazine's Craig Anderson and entrepreneur Andrew Keen with Alan T. Saracevic on Web 2.0. ]

Upon closer inspection, this latest Internet run-up has a deeper grounding, with millions of people online -- and millions of dollars in advertising being spent to reach them.

"A gigantic gush of consumer products advertising dollars is moving online," said Paul Kedrosky, a venture capitalist and author of the Infectious Greed blog. Consumer product companies represent 11 percent of the $145 billion global advertising market, but they spend only 1 percent of their ad budgets online, Kedrosky said.

"That's absurdly low," he said, but it's changing, and "a gigantic sluice is opening up. And that's allowing all these bubbly, frothy things to happen."

Much of the first bubble, which reached a feverish pitch before popping in 2000, was based on speculation about how big the Internet would become, and what kind of companies would make big money on it.

While that speculation still exists, no one now disputes that the Internet has changed the way much of business is conducted, to say nothing of how people interact or how entertainment is broadcast. And the Internet has been broadly adopted, with the Pew Internet and American Life Project finding that 42 percent of Americans have high-speed Internet connections at home, and nearly three-fourths of all U.S. adults are regular Internet users.

"We should all be worshiping at the altar of the bubble blowers of 1998," Kedrosky said. "It turns out they were right. They were just way too early."

Other key differences:

-- Startups now tend to sell themselves to bigger firms, rather than have an overly hyped initial public offering on the stock market.

-- Entrepreneurs can start companies with a lot less money due to technological advances, therefore diminishing the importance of venture capitalists looking for big gains.

-- A new emphasis on social networking and connecting people, rather than e-commerce, which was foisted on consumers before they trusted the medium.

-- Big media companies that sued to stop or slow technology the first time around, as the recording industry did when faced with the threat of online song piracy, are now embracing the Internet, signing deals and seeing potential for new revenue with services like Apple's iTunes Store and YouTube.

On the other hand, some of the same issues that emerged in the dot-com era remain today, albeit in different form:

-- Companies are still using their stock as currency to make other acquisitions. While Google is sitting on $10 billion cash, it chose to buy YouTube using its stock -- the same sort of so-called "funny money" that AOL used to buy TimeWarner at the end of the last bubble.

-- The big challenge remains figuring out how to wring money out of all the people using the Internet -- in dot-com parlance, the "monetizing eyeballs." While Google appears to have hit on the solution with ads targeted to searches, analysts are wondering whether growing concerns about fraudulent clicks on those ads could bring this new gold mine down like a house of cards.

-- While venture capitalists have learned some lessons, they are still running like sheep into crowded competitive landscapes. Some analysts estimate there are more than 240 online video firms out there, and the number of social networking startups -- read MySpace copycats -- is in the dozens.

"I absolutely think we're in a bubble, but the bubble we're in is very different," said Joe Kraus, chief executive officer of JotSpot, a Web 2.0 company that provides software that businesspeople use for collaboration. Kraus knows bubbles: He founded Internet portal Excite, a classic example of the first dot-com go-round that included a stratospheric stock offering and a sobering collapse.

"A huge number of companies are being created and funded right now," Kraus said. "It's so much cheaper to bring a product to market these days. Computers are 100 times cheaper. The software you use to develop your software is free. You have access to offshore labor like never before. ... (Google) AdWords allow you to reach small markets."

That means entrepreneurs don't need to go to the public market. Kraus said too many "fifth-tier companies" (he named Theglobe.net as an example) had big public stock offerings in the late 1990s, which he doesn't see happening now. Wall Street drove much of what then-Federal Reserve Board Chairman Alan Greenspan termed "irrational exuberance" in the late 1990s, and it was the onset of a bear market that finally burst the bubble.

"The great thing in this bubble is, it's not accessible to retail investors," Kraus said. Last time, "investors like my mom and dad could invest in speculative companies. My mom and dad have no access this time. It's all funded by private capital and private equity. The only people who get hurt are people who can afford to get hurt."

According to venture capital research firm Dow Jones VentureOne, 49 Web 2.0 companies received $262.3 million in the first half of 2006, compared to 51 companies getting $199 million in all of 2005. VentureOne defined Web 2.0 companies as those consumer-oriented Web sites with open interfaces specializing in user-generated content and social networking.

But Web 2.0 still represents a tiny portion of where venture capitalists are putting their money. Overall, according to Josh Grove, a senior research analyst at VentureOne, firms invested $13 billion in a range of industries, primarily the more traditional tech mainstays like software, semiconductors, hardware, networking, and biotech and medical devices.

The median size of a Web 2.0 investment is $4.63 million, Grove said, compared to $7.5 million for all venture investments. "While there is more interest than there has been in these Web 2.0 companies, it still hasn't reached bubble proportions yet," he said.

Tristan Louis learned a thing or two about the bubble during his time in 1999 at Boo.com, a fashion site that was one of that era's more spectacular flameouts, burning through $120 million in six months, according to some reports. Louis, who now works in New York, leading a team of innovators at a large financial institution, compiled a list on his blog of many of the top deals of the Web 2.0 era.

While a small handful, such as Google-YouTube and eBay's acquisition of Internet telephony firm Skype for $2.6 billion last fall, reached stratospheric proportions, most of them fell in the $30 million to $50 million range. Many of the deals were so small that the Securities and Exchange Commission didn't even require the acquiring companies to disclose the purchase price, and Louis relied on rumored numbers; all were certainly below $100 million.

The deals, which date back to 2003, included Google's acquisitions of Blogger, Picasa, Dodgeball, MeasureMap and Writely, as well as rival Yahoo's acquisitions of Flickr, del.icio.us, Oddpost and Upcoming.org. Sony bought video site Grouper in August for $65 million.

The comparatively low sale prices indicated to Louis that the air has not yet inflated this bubble. "The data does not support that conclusion yet," he wrote on his blog at www.tnl.net.

Louis even joins a growing chorus arguing that Google's deal for YouTube makes perfect sense. YouTube, after all, plays 100 million video clips a day, owns 46 percent of the online video market (as calculated by market research firm Hitwise), and is the eighth most popular site on the Internet (as measured by Alexa.com).

"I think the acquisition makes incredible sense," said George Zachary, a partner at venture capital firm Charles River Ventures. He compared the deal to Microsoft's acquisition of Hotmail in 1998 for a reported $400 million, saying that people thought the software giant overpaid, only to see Hotmail become a hugely popular Web-based e-mail service.

"I think the same thing is happening with online entertainment services," Zachary said. Consumers are spending more and more time on the Internet, rivaling the time they spend in front of the television. Realizing this, Internet and media companies are racing to find ways to capture their attention.

"The future of entertainment is online and they need to line up their properties," Zachary said.

In an almost parallel argument, Kedrosky, of the Infectious Greed blog, compares the YouTube deal to Disney's purchase of Fox Family Worldwide in 2001 for $5.3 billion. That deal made sense, he said, because it was a media deal -- and so is Google-YouTube.

"People are in the bad habit of looking at YouTube as a technology company," he said. "It isn't. The technology is trivial. It's a media company."

Google stands to make millions in advertising revenue from its acquisition of YouTube, said Kyle Mashima, CEO of FilmLoop, a site that lets people share photos and scroll pictures across their screens.

"Google is pretty good at math," he said. "I don't think they'll be making purchases out of their realm. ... Though the numbers are high and expensive, they have at least some sound economic basis for coming up with that value."

Dmitry Shapiro, founder and CEO of Veoh, an online video site, concurred: "We're going to look back and say they got a bargain."