Compare and Contrast: Dot Com Bust and Web Two Point Doh

I’m spending my quiet time thinking about what lays in front of us, in fact, given the market data, there’s troubled times ahead not just for tech, but the US economy which of course impacts globally, as we’re major importers of goods from other nations.

I was part of the first web bust, at a high flying startup that had 5 splits then came crashing to Chapter 11 –twice. I tell my story about Exodus and remember it vividly, as without recalling history, we’re doomed to repeat it again.

In this post, I’ll compare and contrast how this was different from the last dot com bust in 2001, but I’ll do my best to provide an objective viewpoint –not one filled with panic.

Compare and Contrast: Dot Com Bust and Web Two Point Doh

VC funding
I don’t have access to a 10 year funding graph, but this article shows a rise in the number of silicon valley companies that were funded during the first web wave. While Techcrunch shows a noticable increase (a doubling from 05-08 in funding dollars from 2006-2008) in funding for the second wave, but shows VC confidence drastically lowering in 2008.

In the first web wave, the exit strategy was IPO, where private equity was then made available to the free market, selling the ownership of the company to shareholders. In the second round, most companies exit strategy weren’t M&A but instead are acquisitions, or merger activity.

911 and Credit Crunch
This tragic day was the start of the collapse in the United States and other global partners. For the second wave, this was triggered by the credit crunch, perhaps very disastrous as well, and appeared to hit us out of nowhere.

Stock Drops
In the first dot come bust, many industries were reeling from the impacts of 911, (airlines come to mind) this set off a different kind of panic. We saw stock prices of dot coms bottoming out, then becoming penny stocks and resulting in a few companies collapsing. While some of the big players like Google have seen 60% devaluation of their share prices, most startups, being private, haven’t be hit in this way.

Market Performance
I’m not a financial analyst, so I can’t give much insight to this arena, but although the Dow Jones Industrial Average Index is currently at 9387 today, we forget that it was even lower at 7528 in October 2002, this Google Finance map (set to 10 years) shows.

In the first web wave, while many were able to stand the test of time with actual revenues like Paypal, eBay, Yahoo, Weather, Google, Amazon, Linkedin, for many others it was about getting eyeballs, brand awareness, and pumping stock prices with announcements. Today, we don’t hear of many stories of companies who are now hand over first profitable, in fact, the largest players like Facebook, Twitter, and other social networks still struggle with defining clear revenue model.

The first web bust was known for the massive hacking of jobs, I remember many being layed off in silicon valley, and they fled to other tech centers like Seattle, Portland, Texas, and San Diego. I also recall that the number one migration of jobs in the valley was to become a realtor. I shifted to the banking industry (intranet) but would be somewhat hesitant today given all that’s gone on.

The first web boom was funded by VC and private investors who had to put in a substantial amount of investments to get companies lifted off the ground, as a result, there were just a few players in each space. Today, development technology and open source have enabled companies to get launched from very little funding –sometimes none at all. Of course, this comes with a downside as you soon start to have too many players in one space, my list of community vendors caps out at 90 companies doing the same thing. Update: Jeroen de Miranda, points out in Twitter that today’s web delivery is more software as a service, not on premise software, making adoption faster, cheaper, in many cases.

Barbera Ling in the comments below nods to the point that recruiting will suffer now as it has suffered before. One contrast however is that now anyone can build an online reputation, and network with others with little technical skill using social media tools.

I’d love to hear your compare and contrast of the first web bust and what could happen in the next few years.