Bubbles don’t happen because valuations are high. Bubbles happen because valuations are in excess of what business fundamentals can reasonably justify. As the word implies, a bubble occurs when that which is solid is supplanted by air. Thus, it is quite possible for bubbles to occur even in a low valuation environment.

I remain fascinated, and not entirely in a positive way, by the continuing debate over that which defines the San Francisco web ecosystem as opposed to that of New York. That San Franciscans want to “change the world” while New Yorkers are all caught up in financial statements was last week’s entertainment. There is a new installment on the airwaves now, as exemplified by this blog commentary from yesterday’s press, according to which New York is not sophisticated enough to even understand practical matters. The author points – and I detect some pride – to a dark underbelly of west coast media entrepreneurship, in which web traffic procurement is a matter of tricks and wizardry, secret buttons, “secret sauce,” invading the contact lists of unsuspecting emailers, (dare I say, hacking), and such other stuff that would make New Yorkers, apparently, blush. (In this morning’s headlines, a long profile piece on Facebook’s Mark Zuckerberg would support the case presented, although Zuckerberg’s roots were in stately Boston. Nevertheless, he is in San Francisco now, and a staple of the local culture.) In short, San Francisco has us beaten in matters of idealism as well as brass-knuckled dark-alley affairs.

I don’t know about idealism and changing the world; I suppose that when for a century a place has been the center of the world’s artistic, economic, and political scene, the stuff just happens and we tend not to think about it much. With regard to our street savvy being questioned, however, I take offense, recalling Times Square before it was cleaned up and Disneyfied. Perhaps New Yorkers do indeed blush more easily since Giuliani, I haven’t conducted studies, but I can’t believe our heritage would come to ruin, to be slighted for our lack of smarts and belittled for naivete. I can’t believe that centuries of feisty Horatio Algers, crowds, advertisements, big lights, theaters, magazines, television, Madison Avenue, have fallen to a point of irrelevance, because there is a secret to new media that is so profound, so dark, so unfathomable, that only San Francisco gets it.

I am reminded of a time, back in the late 90s, when another hot communications sector called wireless was coming into its own. This gave rise to a new asset class called communication towers: you’ve seen the ugly metal things on highways and in suburban yards. It being a new asset class, it being the late 90s, it being Wall Street, tower developers were strongly encouraged by capital markets to erect as many of these, as quickly as possible. Naturally, there was a rush to do so in Texas, where space is ample and zoning restrictions nil. In short, tower portfolios were created, as ordered, but there was a bubble… because numbers alone don’t matter if there is no underlying business, and there is no underlying business for towers that are ten feet apart in the middle of nowhere. I exaggerate to make a point, but that story did not end well, and my recounting it should not be taken as a digression.

Back to the web’s entrepreneurial cleverness and the dark underbelly referenced… we should consider the following: Not all traffic is quality traffic, not all advertising impressions are quality impressions, fabricated audience is not sustainable, and substance sooner or later does matter. Perhaps this is my patriotic pride as a New Yorker acting out, but our media community benefits from a uniquely rich tradition and history lessons that should not be discounted. There is a culture of making real money here in media, with real advertising and real subscriptions to a real audience, and it is wrong to dismiss this age-old presence and knowledge-base as trivial or inferior somehow. Advertising revenue in media is not a thing of the past, and neither is subscription revenue. At some point, one of these two economic modes has to bear fruit, even for Twitter, and that is more likely to occur in New York than elsewhere.

Until then, and all kidding aside, entrepreneurs on both coasts will have to adapt to an ultimate reality: capital is necessary for what you do, and VCs don’t have your backs without exits… M&A will not pay top-dollar without an IPO market to prop it up… Wall Street is New York, not San Francisco, and you will not IPO until New York says it’s ok to do so. You better be nice to us, San Francisco, and brush up on our ways more than you have. Facebook is starting to learn.