Time, and the fumbling of a $400m payday, can do funny things to the memory. John Battelle, former founder of the Industry Standard, is at odds with the defunct magazine's backer, who claims the permatanned entrepreneur, dreaming of "world domination", thwarted a fabulous exit to Time Warner or Hearst. Pat McGovern of IDG, which owned the majority of the Industry's Standard during the magazine's meteoric rise, portrays Battelle confident to the point of hubris: extrapolating the magazine's annual revenues to $1bn in 2006, and planning a hostile bid for Dow Jones, owner of the Wall Street Journal. "Revisionist history," responds Battelle. The squabble is amusing, if only to see Federated Media boss Battelle — who usually affects a pot-smoking it's-all-good west-coast zen-buddhism — show a little edge. But there's one more significant lesson for current-day entrepreneurs.

Both Battelle and IDG messed up, not so much because they missed a sale, but because they became intoxicated by a bubble in tech advertising. You think there's no such thing as bad money? As Fred Wilson, one of the principals of the Standard's venture capital investors, notes: "Unsustainable revenues will kill you if you build your costs to match them."

In 1999, the tech magazine, buoyed by advertising from internet companies desperate to get noticed amid the confusion, made an astonishing $200m in revenues; it was the beneficiary of the surge in startup investment, much of which ended up, not in product development, but in marketing budgets. When tech advertising collapsed, the business was still left with a frightening $120m a year in staff costs, lease obligations and other expenses — which killed Battelle's dream.

The eternal optimists of technology say this internet cycle is different; that the advertisers are "real" this time, in contrast to the circular advertising deals and venture-funded attention-seeking that characterized the last tech advertising boom. That's true only up to a point. The surge of advertising to sites such as Myspace, and Gawker titles, for that matter, is driven by movie studios, TV networks, and, increasingly, other internet sites.

It certainly makes more sense for a movie studio to advertise a new science fiction DVD to the younger audience of Myspace than to the retirees who read the New York Times Movies section. But, when paid-for banner ads lead to another site that's supported by banner ads, you know that something's wrong. Anyone who relies on that circular spending is, like John Battelle back during the last cycle, asking for trouble.