A return to Stupidland: Ten years after the dotcom boom
The trailblazers of the first dotcom boom made millions. Hoping to join their ranks was Andrew Marshall – but then the bubble burst. Ten years later, as the new web giants are valued at billions, he argues that it is his generation's failures that have made it all possible
Monday 28 February 2011
Two weeks ago, I found myself in a Clerkenwell bar that I used to go to a lot 10 years ago. I was meeting up with former colleagues I had worked with at the turn of the millennium.
We'd only been together a few months when the firm went bust, but we had built a strong bond: we were dotcom survivors, colleagues in a company with a shiny logo and no money that had gone bust, glamorously.
It had been a decade, almost to the day, since we learnt that what went up must come down. The company's managers had called us to a meeting in our industrial loft in Amwell Street, and told us, rather solemnly, that there were "a couple of things regarding the company we need to bring you up to speed on". We shuffled nervously. Redundancies were expected. Instead, the manager said: "We are now in administration." Silence. "I guess that other thing doesn't really matter then," said a colleague.
We spent much of the afternoon in the Peasant in Clerkenwell, drinking whatever money we had left. Now, 10 years on, a group of us were gathered to tell a few war stories, and talk about what it all meant. The consensus: we all took more value out of the experience – much more – than we had realised. The dotcom bubble and crash, now more than 10 years away, has a lot of lessons – positive and negative – for the world today, as once again, valuations climb into the stratosphere.
What was the bubble? Basically, easy money met smart ideas and made whoopee. Interest rates were low as central banks had eased monetary policy after the Asian financial crisis of 1998-9. New technology was creating new ideas and new internet-based companies. Few of these had much income, but all seemed like real hopes for the future. The trouble was, no-one was sure which of them was real and which was a waste of time; so they all got funded. And once they got funded, the mantra of "big is best" meant each tried to grow into a real brand as fast as possible (or "build out the offering", as we used to say then), so they could IPO (Initial Public Offering or shares offer) and everyone could start again. Many came to the stock market at massive valuations and that in turn inspired a new round of companies with odd names and faith-based business plans. Anything and everything was going to be done on the web, it seemed clear, and everyone wanted to be in on the ground floor.
I got on the travelator just before it came to a grinding halt. I had been a foreign correspondent for The Independent in the 1990s, but I had wanted something else: a second career in business. An opportunity came up at eCountries.com. I knew the dotcom boom was past its sell-by date – the NASDAQ stock market had crashed in March 2000, and by the time I joined, the chilling effects on companies around the world were only too obvious. But I wanted to be there. I thought newspapers were in trouble, and I wanted to be on the winning side of history. Great timing.
My new employer was a business-to-business website, where companies could rent property, or find legal advice, or accountants, or photocopiers, with a focus on emerging markets, especially Asia. It was started by Jonathan Schmidt and Donal Smith, two former Financial Times executives, and the managing editor was Michael Elliott, ex-Economist and Newsweek, so it had some pedigree. I was running the content side: the news, analysis and research that would lure the audience, persuade them of our brand's solidity and entice them to rent property in Hong Kong. We had a team of journalists that produced some great stuff, and we built a name for ourselves pretty quickly. The idea was to be a kind of online Economist (that magazine was finding the internet only slowly, and was still not entirely down with the kids).
It was a good idea, but it didn't work. We didn't make enough money to keep going. And we didn't have enough money in the bank to stay afloat. By January 2001 things looked tough; and then in February the money men pulled away the carpet.
We picked ourselves up, dusted ourselves down and got on with life. I wrote an article about my experiences for The Independent and the next day picked up a terrific consulting job with a bank (one of the bankers had read the piece and cold-called me. Old media still reaches audiences). I spent the rest of the decade working in marketing, business strategy, risk and business development with a consultancy, areas I had never remotely imagined would be interesting or possible. I had learned a lot: working in a startup had been like a six-month MBA, and considerably cheaper.
My colleagues from eCountries, a diverse and talented lot, went on to distinguished careers around the world. One group has moved on to lively careers in media, communications and government: an official in the US government running policy in Africa; the Economist correspondent in Johannesburg; the FT correspondent in Dubai; a senior role at the World Economic Forum; jobs at the World Bank, Thomson Reuters, the BBC and the Irish Independent. A second group moved through tech firms in the US and Europe: Virgin, Lycos, Yahoo!, Vodafone, Google. Others, though, were not in media at all: they moved into banking, insurance, retail, the London Olympics – anywhere, really, because the internet no longer had a capital I: it wasn't separate from other forms of communication or business.
There were a lot of warm memories, at this distance. Patrick Shine, product director at eCountries and now an internet strategist, remembers "the feeling that anything was possible. The world was changing, and I and the people I worked with were changing it. We felt we could take the world over. We were buccaneers, operating out of lofts and threatening to take over multinationals. That was incredible. It was a bubble, but it was incredibly exciting to be in that bubble."
Those of us from old media backgrounds found it liberating beyond belief. "I remember reporting the riots from the 2000 World Bank/IMF meetings in Prague and thinking, we can do this in real time – and nobody else is," says Michael Elliott, then managing editor and now deputy managing editor of Time Magazine.
Lest we slide too rapidly into the warm bath of nostalgia, let me turn on the cold bidet of realism. We went bust, and my career as a dotcom warrior lasted precisely six months. So, let me say those three little words that men find so hard: I was wrong. I was wrong about a lot of things, including how media would evolve. If you had asked me in 2000 how long The Independent would be around, I would have bet you it wouldn't make the decade. And here it is, and there is my dotcom. Second: had you asked me what the future of the internet was, I would have said content: good, well-written content produced by professionals. Wrong. I didn't foresee social media or user-generated content.
Though I am nostalgic for the era (playing table football in Café Kick with a Brazilian beer; learning to live without a tie; staying until midnight to get the pages just right, and then reading the site stats in Starbucks the next day), I am clear-eyed about the excess and its results. The bubble, and its bursting, were bad. They consumed a vast amount of capital that wasn't going to come back (though it turns out that to do it properly you need to call in the professionals – the bankers). There is no question that a lot of grinning fools in polo shirts made a lot of money from a lot of hokum, and spent it on foolishness (I had rather hoped to be among them).
But bubble – the vast amounts of money for a good idea – fomented a creative atmosphere where many learnt they could flourish outside the cubicle farms of large corporations, and where they could build global brands in a few months. The bursting was a necessary emesis of the worst and the weakest, as well as those that were simply ahead of their time; but the bubble was also a necessary part of a new technology.
"This cycle – hope, hype, despair, rebound, etc – has been interesting to watch (and live through)," wrote Steve Case, former chief executive of AOL. "It is worth pointing out though that what happened with the internet is not unique to the internet – the cycles just happened a little faster. Most significant inventions and industries have undergone similar transitions. Success seems to need a mix of passion, perspective, and perseverance."
Some good companies resulted from this period: they survive and make money. "The core web 1.0 companies like Google, Amazon, and eBay, have all transformed or founded major industries. Maybe only Google of those companies still seems innovative now, but the services they offer were unimaginable to most people 20 years ago. They have made huge changes in the ways companies do business, and the way people all over the world communicate," says Shine.
Some of those that have become exemplars of the dotcom dottiness were, in retrospect, not such bad ideas, even if they were often poorly (and over-expensively) executed. Take Boo.com, the legendary fashion venture founded by two 29-year-old Swedes that burned through £125 million in just six months. The management did a poor job (the site didn't work very well, returned goods cost them a fortune in postage, they hired too many and spent too much). But it wasn't an obviously stupid idea; indeed, 10 years on, Net-A-Porter is doing just what Boo set out to do, and making money.
Creative destruction is a very powerful force in capitalism. It isn't very fair-minded – good ideas as well as bad get crushed. The ones that survive are... the survivable ones, with low overheads, solid ideas, reasonable prospects of success, funding, clients or just luck. Life isn't fair; and nor is business. Many who went through the startup mill learned this, internalised it, and moved on.
"I was fortunate to be in a startup with really very talented, bright people and they opened my eyes to the possibility of really making something happen," says Nania Tait, then the office manager of eCountries. "I think we missed the mark by a tiny margin. It taught me that it is OK to take risks and to fail and that losing a job is not a matter of life and death. My husband and I now run a design business together. It is a great feeling to be doing something that we really want to do and enjoy, with people we respect and with whom we enjoy working and with that element of personal risk and possible reward."
And of course new media has moved on. Out of the ashes came web 2.0, new, shiny and (above all) cheap. It was (and is) decentralised, conversational, contributory, open, where a lot of web 1.0 had been centralised, packaged, command-driven, and closed. It didn't employ hordes of content creators – it found even bigger hordes, for free, in the general population. It didn't depend on massive burn rates. It was, however, just as intent on finding the next big thing: networking, games, video, coupons, location – and just as bubblicious.
The week after my dotcom reunion, I was back in New York, heading over to Time Inc on Sixth Avenue. No mainstream media company has navigated the oceans of new media more publicly, painfully, than Time's parent company, Time Warner. Back in 2000, at the height of the boom, the brash young upstarts America Online merged with venerable old Time Warner in a deal valued at $350 billion, the largest merger in history. It was predicated on the belief that the internet would change everything – that media needed technology and technology needed content. It was a disaster, destroying value for shareholders, wasting time and energy, and ultimately the marriage was dissolved two years ago, the last survivor of a vanished age. But the end of the marriage didn't mean Time has been able to forget about new media: if anything, the reverse. It has built an armoury of digital counterparts to old media products and a few new ones as well.
Time is hosting a conference that is part of Social Media Week, a celebration of the new, new media. This is the corporate end of the stick: vast PowerPoint projections on the wall with stats for Time's web properties. The big money is back: that is clear. Oh, and AOL has acquired the Huffington Post, an online news offering. So new media needs content again.
Later that evening, I attend another event at the New York Stock Exchange. Five years ago – two years ago – the idea of a conference on social media at the NYSE would have been out of the question: social media was teenage angst and casual sex, not investment material. Now, all of the financial giants on the podium – the FT, Bloomberg, Thompson Reuters, NBC – have blogs and tweets and all the rest. The financial news has been full of the valuations of Twitter and Facebook, the IPO for business networking site LinkedIn.
And the verdict of the pundits at the NYSE conference? "We are about to enter Stupidland," said Jamie Punishill, Global Head Wealth Online at Thomson Reuters. The names are getting wacky again (Groupon, Zynga, Quora) and so are the valuations. We are heading back there again: all of the signals are present of another bubble (AOL is buying again, so we should all be nervous).
When we look back in 10 years' time, which of the big names now will even exist? The uncertainties – what works? what makes money? what do customers want? – are real: we just don't know yet. And that is precisely what makes the process of bubble and burst so painful – but also so exciting, even if you end up on the wrong end of the transaction. I haven't forgotten that; and faced with the choice again of staying with what I knew or making a leap into the unknown, I would make the same decision.
Andrew Marshall is a consultant with Consultifi, and a former foreign editor of The Independent.
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