To précis the situation very quickly, the problem was that dot coms had to be run by very technical people by their very nature, and they drew vast backing from businessmen and women who very shrewdly realised that the internet was a Good Thing. The businessmen also realised, in their shrewdness, that it was going to be a very competitive market to stay afloat in, and without the best business support, the technical guys could have the best product in the world, and it wouldn't float.
So the business guys did what they do best, and spent wads of cash on advertising, Pets.com famously spent $1.2million on advertising during the SuperBowl in 2000, and maybe this is why it is still the Gold Standard for internet business failures. (Editor's note to self: maybe Gold Standard isn't a good description of failure?)
The technical guys, meanwhile, did what they wanted to do with their own little businesses at last, with huge backing from businessmen, they piled massive amounts of cash into Research and Development. It is estimated that some businesses around this time were spending upwards of 75% of their capital investment on advertising and R&D.
Thus the operating costs overtook the income of most of the businesses and they went into "negative profitability", or loss as it is more commonly known. Stupid huh?
Well, with hindsight it would appear so, but the same thing happened in the Gold Rush of 1848 and no-one thought to bring that up. OK, it wasn't businessmen and technical guys, but at the end of the day it was over-competition for a share of a finite pie. So there were still winners, and new pies are being created all the time, Mark Curphey pointed out the other day that one of the first millionaires in the Gold Rush was the chap who sold shovels.
The stock market rise and fall on the back of this was also a repeat of something which happened many years earlier. The South Sea Bubble of the 1720s bankrupted Isaac Newton amongst others, including half the British government of the day, and yet we still don't seem to learn.
There are a host of unanswered questions that can come out of this:
- Is this just the nature of markets and monopolies?
- Is there a way to avoid it?
- How will 2.0 be different now the business guys are technical and the technical guys know business?
- What's the bearing on security?
- What's the modern shovel equivalent?
I just wanted to share some stuff I learned today. Interesting innit?