Dot Com Crash: Whose Fault Is it Anyway?

Written By: Rob Spiegel

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 executives 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.

About the Author

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

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