Dot Com Crash: Whose Fault Is it Anyway?
by Rob Spiegel
Dot Com Crash: Whose Fault Is it Anyway? Since January of last year, 435 Internet-based companies have folded. More than half of these closures occurred this year alone. The effects are far-reaching, even blamed for the current economic downturn.
The statistics coming off the crash in dot com stocks are adding up to a bleak picture. This week I read an editorial in Electronic News by managing editor Peter Brown that presented some disturbing numbers. According to Reuters Media, a total of 100,000 jobs have vanished from the Internet economy since December, 1999. A full 50,000 of those jobs have disappeared since February. In three bloody months, the dot com damage has doubled. In April, 55 dot com companies shut their doors, which is up from the March total of 44. Since January of last year, 435 Internet-based companies have folded. More than half of these closures occurred this year alone.
The carnage has spread far beyond Silicon Valley. Seems much of our economy is now shaking because of the dot com fall out. Even the major television networks, ABC, NBC and CBS blame their current advertising revenue woes on the dot com failures. Certainly Cisco, Sun Microsystems and Intel are suffering from fall-off in demand for their Internet-boom products. Many observers blame the downturn itself on the popping dot com bubble. I guess the failure of a few hundred Internet start-ups can drag down the entire global economy. So whose fault is it?
Is it the dot com executive's fault?
Should we blame the 26-year-old college dropout who was funded to the tune of $15 or $20 million to develop a cool new way for teens to communicate with each other over the Net? We say, "Hey, how do you make any money off bringing a bunch a kids to chat rooms and games?" I say, how is a 26-year-old college dropout supposed to question the business model of a company that has been funded to draw audience rather than to create profits? Remember the eyeball rush? The dot com start-up kids were not given the mandate to build profitable revenue streams. They were funded to build audience. They did.
Is it the venture capitalist's fault?
So does that mean it was the venture capitalists' fault for giving the kid a very big pocket full of change without making sure the business plan said something about profits before the kid retires? The VC is easily the most misunderstood character on the dot com scene. One of the interesting statistics coming from the Internet crash is that VCs are hitting their batting averages. Most venture companies don't expect to bat much above 300. That means seven out of ten of their companies are expected to fail. The word venture means big, big risk. Most of the experienced VCs met or beat their average during the dot com craze.
Is it my fault?
How about the media? Oh, we hyped it all right. But we hype everything. Right now we're hyping the crash. The dramatic rise of the Internet bubble has been the business story of my professional career. Of course we're going to cover it with raving enthusiasm. But remember, deep skepticism ran through the business press simultaneously with the gushing over the New Economy. All told, I think the business media did a balanced job reporting the dot com raise and collapse.
Does all this mean I don't blame anybody? Yes, pretty much. The dot com phenomenon has included both successes and failures every step of the way. Even now, with those dire statistics of Internet crashes, I can make a case for the continued success of e-business transformation.
What about all this good news?
Did you know that virtually every large company is still hip-deep in the process of re-making itself into a Internet-centric entity? More than 50 percent of corporate capital spending is going to information technology, up from 15 percent in 1990. Did you know the growth in consumer spending over the Internet will exceed 45 percent this year? Spending at travel sites alone will grow more than 50 percent. Did you know the total spending over the Internet will exceed half a trillion dollars this year, far beyond the craziest dream of just three years ago? In the Internet world, these are the best of times and these are the worst of times.
Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring Entrepreneur's Guide to the Best Home-Based Businesses (St. Martin's Press). You can reach Rob at spiegelrob@aol.com