What idiocy am I talking about? The idiocy of the first web craze from 1998-2001.
I started off my career working at Exodus Communications, a premiere web host for the top web brands, at the headquarters in Santa Clara, in the heart of the valley during the height of the boom.
I’m moderating a panel at Graphing Social Patterns, which is focused on the current hot market, social networking, which I cover as an analyst, and comment on frequently. To me, it’s important to remember where we’ve been, as it’s an indicator of where we’ll go, and I’m not just going to only look at the benefits, but will also highlight the challenges that this industry has.
Let’s start by first looking at the idiocy of the first wave to give some context of where we are going now, I’m going to mention what I observed in the past, and want you to help me answer (via comments or your blog) if this is where we’re now.
Commemorating the Idiocy of the Dot Com Era: Did we Repeat or Reform?
1) In the dot com rush, I remember marketing plans starting (and sometimes ending) with lavish parties in San Francisco at some of the most premier locations. It included actors, food from 5 star restaurants, giant ice sculptures where premium vodka was shuttled down to clamoring guests at the “ice luge”. The who’s who were spotted at these parties, Did we Repeat or Reform?
2) In the eInsanity, I recall ridiculous companies being founded such as eStamps (buy stamps electronically so you could then send snail mail more efficiently), Beenz (internet currency), pets.com (online store for all things pets). I was at all of those parties by the way. Did we Repeat or Reform?
3) I remember that carrying my exodus badge (It had the company logo, my picture and provided access to the building) was like a god given right to drive a BMW home at a dealership over night, as many of those that had cashed out bought quite a few Bimmers at the local dealership in San Mateo. Did we Repeat or Reform?
4) A few years ago, one of the determinants for joining a startup wasn’t how fulfilling the job was, but how many shares you got, how great the cafeteria was, and if you could bring your dog, or get massages at work. Did we Repeat or Reform?
5) In the boom time, we declared real world shopping stories dead, the move to click was needed or companies should buy wooden boards to cover up their stores. Did we Repeat or Reform?
6) Recently, in Silicon Valley (and beyond), a business model was defined as an IPO (yet we know that’s an exist strategy, not a sustainable plan). I distinctly remember being on a plane ride, and remember a group of execs at a startup (I have no idea which one) ordering champagne and bragging that they could drink as much as they could as one was going IPO. Did we Repeat or Reform?
7) During the electronic gold rush, immigrants from around the world flooded silicon valley in hopes of catching the IPO wave. The economy (and layoffs) was informally measured by the amount of cars on 101 every morning. Did we Repeat or Reform?
8] Leave your own in the comments, and feel free to answer the above, I want to know what you think.
I could go on and on, and if you’re interested, some time ago, I wrote this post on how I remember Exodus. If these stories are conjuring up dreams or nightmares, be sure to leave a comment, and answer those questions above.
Did we Repeat or Reform?
It seems so much of the focus in the first wave centered upon getting in the biz and getting rich, or at least appearing rich or cool or on the road to being rich. We all heard the stories. It was like the first wave of “home computers” – there was a rush to own, then people started asking “what do I do with it now?”
Now, in Web 2.0, the focus is upon *value* – how we interact with each other and how this makes our lives easier or better or more informed or faster informed. It can only get better from here.
1) Reform: only 3-star restaurants, and not full-course meals
2) Repeat: still some crazy ass ideas, just not the extra zero or two in funding
3) Reform: except for Googlers, we’re on a budget this time
4) Repeat/Reform: some of that happening again, altho salaries aren’t as crazy unless you’re an engineer
5) Repeat: offline biz still don’t get no respect, and not enough startups valuing cold hard cash
6) Repeat/Reform: no one thinks they’re going IPO except Facebook & LinkedIn, but still some optimistic views on exits with little rev$
7) Repeat: lots of NYC imports again
overall, we’re probably halfway to hell in a handbasket again… albeit, we’re driving there at half the speed of a decade ago, and on a third of the budget and insanity.
I have two words that separate today from yesterday:
burn rate
Thank gawd we are, for the most part, done with the silliness of throwing insane amounts of VC dollars at companies that were little more than concepts. I was mostly in the academic world at that time but I had my flirtations with some dot com bombs. Glad I stayed at the university ’til 2004 when things were a bit saner.
Today, I think there’s the realization that you can pilot an idea and do a reasonable proof of concept with a few thousand dollars rather than a few million. I think that’s the big difference.
Dave McClure, thanks for this. interesting.
Jay, I remember that horrible word, or we used to call it ‘runway’ as well (still do)
I am a survivor of the dotcom bust (I ran the UX team at an agency) and I have to say that I am not seeing the same irrational exuberance that I was seeing before. It seemed that a serendipitous idea and a pile of cash was enough back then. Whereas today’s ventures seem to be more grounded.
1) I am not seeing the same level of excesses. Reform.
2) Repeat but not nearly as bad.
3) Reform. People seem to be more conscious of over-consumption and partying like it’s 1999
4) At least here on the east coast it seems like this is a reform. Perks are less likely to sway people IMHO.
5) I think we might have reformed a bit on this one. Didn’t Apple stores open up and gain huge popularity?
6) Reform. IPO seems to be less of emphasis, however exit plans couuld be today’s IPO as Dave suggests.
7) Repeat, lots of imports from India
The lessons of the bust were so loud, economic memory is still ringing from the sound of things closing.
It is too bad some survivors are so burned that they are afraid to take chances again.
The chances they need to take now have much less to do with finances than they do with changing their perspectives on the market and marketing.
Audience – pre .com bomb we went looking to build an audience around a concept with the monetization model already worked out on back of a napkin.
Key difference: Today audiences are already there. They have selected the communities and platforms that they value. How to monetize the audience is now the question. Interesting switch in that we have the ability to test and learn like never before. FB Beacon is a good example of that.
Failure is not as much about building audience these days as it is about the right economic application against said audience. Unless, of course, you’re Bud TV!
some survivors are so burned that they are afraid to take chances again
Agreed. I know I for one have a huge reluctance to work for a startup of any stripe anymore. The financial hit from the last bust was too harsh.
Excite bought my company (Go Media) in 1996, just before the boom really hit. We rode the wave, big time. Here in Austin, things were perhaps less crazy than in Silicon Valley, but we had our share of nutty startups (anybody remember Netpliance?) and the money was flowing and the egos flying here, too.
This time around, Austin seems smarter. I have several friends doing startups. Quality of life and sustainability are *very* high on their list of objectives.
The coworking movement is a great example of the “new” values. My own startup is a coworking cafe. We spend a lot of time thinking about design and user experience and sustainability. We’re sharing information, sharing knowledge, being transparent. I have not signed an NDA, nor have I asked anyone to sign an NDA (or {shudder} a non-compete).
For me, it’s a whole different experience this time around. Much better, much clearer, much healthier.
Hey Jeremiah.I think it’s pretty hard to exactly replicate a past mistake. There was too much collective learning in our shared consciousness – so given a polarized choice – I’d say reform.
I so remember the 1.0 days, albeit in NYC not the Valley. I worked at iVillage and Barnes and Noble.com pre-IPO and Register.com post IPO. I remember the picture of Candice Carpenter in the NYTimes with cigar right after the IPO. Yet – look at iVillage – which has evolved to a top online/offline media brand for women. It take a lot of money to create a big media brand. And – we spent that money and someone had the smarts to evolve that core value to something even more valuable.
In his recent keynote speech at Affiliate Summit, Jason Calacanis had some great slides showing how 1.0 ideas begot 2.0 success stories. IE – Napster …evolved to iTunes. Six Degrees evolved to MySpace.
For those of us that were around then and absorbed those business models and experiences, it’s very easy to see how continued REFORM and hard work brought about this evolution. We ended up with products that were more grounded in consumer experience and realistic about economic realities. I think it is very important to note that 1.0 companies were full of young, creative entrepreneurial minds (young being the keyword). This time around, we have a core base of managers and directors with 10+ years of experience in the industry. Personally – I think the reform has come from the fact that those in charge this time have, “been there, done that.”
I think we did learn from those nutty days, to some extent. Back in the late 1990’s and 2000 people had fantasies about what it took to be successful. Today, with some high profile exceptions (like Facebook) most people want to see real business plans and real execution before throwing their money onto a company.
IPOs are currently harder to get out, and nobody is writing their business plans while at the financial printer these days.
But, people are easily seduced by get rich quick themes and we could easily see people get silly again.
Social networking and social media is the flavor of the month….but it is not going away. The trick is how to make it sticky. 24 months ago it was MySpace…today it is Facebook….people are fickle so there is some time ahead before we get proven businesses.
The reason that these online networking tools are not going away is that all opportunities come from people…therefore it is necessary for those who seek success to be connected. But it is more than a “LinkedIn” connection that makes a person a real friend….therefore you still need to cultivate true friendships to get opportunities. And there is value to the companies that can help facilitate these relationships.
People never learn from the past, and are always doomed to repeat it.
I have to agree with Dave McClure’s assessment, but would say repeat on each instance.
1) Repeat. Crap, I wrote about this in 2005 and just think it’s getting worse and worse. The parties are not as extravagant, but are as glad handy and congratulatory.
2) Repeat – enough bad ideas, and while not as much money put into single entities, the amount of money being spread about seems to be about equal.
3) Reform, a little bit. But you do see people cash out and cash in pretty fast, with little thought to the future.
4) Repeat – people looking less at business models and more at salary and options. Advertising the first time around didn’t work, so why does it work this time around?
5) Repeat, in a way. I find that there’s so much mockery against traditional things still.
6) Repeat – not IPO this time, but acquisition.
7) Repeat – from LA, from NY, from here, where people are rebranding themselves with little to back it up.
Although I don’t see as much “mass stupidity” these days, I still see a lot of terrible concepts actually getting funded. Not huge sums of money, but still money based on flimsy ideas. In the bad old days of 2001 it seemed like any 3 page pitch could raise a few million as long as no one else was doing it yet. The pre-bubble days seemed to be stoked by the investors that cared little about economics and only desired to get “Netscape Rich” in a few days after IPO. I don’t blame the companies that had the bad ideas and took the money. It was the get rich quick investors that created the environment.
There is still quite a bit of hype around Web 2.0 technologies. I recently saw that the college kid that invented the Virtual Beer for Facebook is speaking at a social networking conference. Now that is the kind of professional genius I want to learn about. LOL!
The thing about the Valley is that in so many ways, it’s one of the stones dropped in the pond that ripples outward (not the only one, but definitely and epicenter…)
Here in Colorado, we had our share of insanity, but not to the same extremes. Not for lack of trying, but perhaps from lack of insularity. It’s hard to be way off the deep end when the people around you aren’t even going near the pool.
That said – I did have my own start-up experiences but I was the one in the office 20 hrs a day crawling about configuring things, in between herding cats and meeting with “important” people…and so I’ll put in my 2 cents.
1) Repeat and Reform – I’m sure there are just as many who will make the same mistakes. History always repeats itself. But fewer perhaps will throw the $ at the illusion.
2) Repeat. Sorry, but there’s one to many “wouldn’t it be neat if…” concepts floating around without any “and here’s how that could be monetized or benefit a client” rationale.
3) Reform. The recent economy doesn’t let anyone think that they can necessarily dump the cash or credit into cars/houses/toys without wondering if they’ll be upside down on them in 2-3 yrs… except the same people who do it no matter what the forecast looks like.
4) Repeat – at least, here that is.
5) Repeat – there will always be those who forget that not every new thing is an answer for all demographics.
6) Repeat – but that’s already been explained by others above. It seems that few ‘entrepreneurs’ these days see themselves actually sticking with their companies long term.
7) Repeat – except this time the real estate is too expensive in the bay area, so I suspect the ‘influx’ will be in the ‘secondary’ markets…
8] There’s a mentality in that neck of the woods that is so very insular despite the global impact that it’s strange at times… The feedback seems to come from those of the same mindset – ‘of course X is true, I asked everyone around me and they all agree’ – without realization that the rest of the world has no clue about X and might just form a different opinion.
It’s a little confusing when you consider that these same people travel frequently and should be exposed to differing mindsets – and spend considerable time on the internet interacting with those from other countries, other cities, other social situations… yet forget to factor that into their business strategies.
That’s the biggest ‘repeat’ I see.
Reform:
The race isn’t about Web real estate anymore, but rather about social graphs.
Repeat:
By definition, a booming economy implies lots of cash flow.
Reform, we’ve got web pages with rounded corners this time.
First of all, I think we are a lot earlier in the business cycle. We aren’t to 1999 levels of silliness yet. Maybe 1997.
Second of all, last time around the US was not running a deficit and we weren’t fighting a war. Third of all, stock markets were willing to let companies go public with a thin rationale (now we have SOX)
Macro-economics does matter. The tightening of public markets both due to the economy and due to legislation matters.
But I still think the bigger issue is just the phase we are at — it could still get crazy again. The underlying data is actually MORE supportive of going crazy.
Where in the first round we predicted that everyone would have broadband, now everyone does. A lot of big companies are still either ignoring the enormous shift in fundamentals brought on by the Internet, or getting it wrong. There is an enormous amount of innovation that is both destroying value in old models and creating value in new models.
In my opinion — you aint seen nothing yet.
Not sure I agree Ted – I see us at 2000 levels, when tons of people were moving here for PR gigs. But now it’s social media experts.
And that was the end last time.
One of the drivers to this latest wave is the very rapid growth of on-line advertising. This is bringing a whole new source of revenue into the technology business outside of the typical hardware, software and service business models. Social Networking to date has been driven mostly by this rush to gain this significant and growing pile of new dollars being transferred over from traditional media outlets. My perspective is this spending may be a bit hasty. My blogs this week are aimed at that exact topic, starting with last Friday – http://bobbickel.blogspot.com/2008/02/social-networking-and-on-line.html
Bob Bickel
Anyone remember Boo.com?
Great post.
I remember a great difference between the pure .com companies, and the established brands back in 1999 – 2001. The start ups seemed to have a lot of grand plans but little in the way of business acumen. I’d recommend reading the Boo.com story “Boo Hoo” by Ernst Malsteem to get an idea as to how too much money and a poor understanding of running a business can result in tears and ruin.
By contrast, I worked with a number of large “offline” brands who were taking their first steps into the digital space. For all of them, their choices in strategy and spend were driven by their central business process – How many more of X can we sell to Y people? How much will it cost? How soon will we realise our ROI? It wasnt rocket science, but they sat down, figured out that ultimately selling online could be cheaper than offline and progressed accordingly.
The most significant change in recent years has been the corporate acceptance of open source tools as a cheaper and quicker way to market. It’s encouraged innovation and “trying out new stuff” in a way that just wasnt possible back in the day of multi million dollar / pound web management solutions. There are ideas coming out now, especially within the mashup territory, that are truly innovative, yet unbelievably simple. “Get Satisfaction” is one great example, as is “Commuter Feed”.
These things will fuel investment by virtue of the number of people that use them, making for a much more stable investment process than we saw before.
I have two words that separate today from yesterday:
burn rate
Thank gawd we are, for the most part, done with the silliness of throwing insane amounts of VC dollars at companies that were little more than concepts. I was mostly in the academic world at that time but I had my flirtations with some dot com bombs. Glad I stayed at the university 'til 2004 when things were a bit saner.
Today, I think there's the realization that you can pilot an idea and do a reasonable proof of concept with a few thousand dollars rather than a few million. I think that's the big difference.