A Look Back At Ten Dot-Com Flops

climbing_monkey writes "CNET.com has posted what, in their opinion, are the top 10 dot-com flops." From the article: "The most astounding thing about the dot-com boom was the obscene amount of money that was spent. Zealous venture capitalists fell over themselves to invest millions in Internet start-ups; dot-coms blew millions on spectacular marketing campaigns; new college graduates became instant millionaires (albeit on paper) and rushed out to spend it; and companies with unproven business models executed massive IPOs with sky-high stock prices. Of course, we all know what eventually happened to this world. Few of these companies actually made enough money to recoup that cash, and when their investors fled to the hills, these start-ups died dramatic deaths. These are the celebrity victims of the new-economy bust."

Comments

see top 10 tech we miss article, instead

[linuxbaby]

Linked from TFA is top 10 tech we miss:

1. Manned space exploration
2. Kozmo.com
3. the original Napster
4. The Concorde
5. GM's EV1 (interesting)
6. The original Palm Pilot
7. Good keyboards
8. Wires
9. LPs
10. The Newton

(I would have put kozmo at #1. Those who used it know what I'm talkin' about.) Read the part about the EV1 car, though. Pretty interesting.

Kibu

[metlin]

Interesting article - it actually lists Kibu as a Top 10 DotCom bust site.

There is a nice book by Lori Gottlieb and Jesse Jacobs called, "Inside the Cult of Kibu: And Other Tales of the Millennial Gold Rush" which talks about the madness during that era.

Nothing new, but it is an interesting read, written by some of the very people behind Kibu.

Marketing

[aftk2]

As those who saw the 2000 Super Bowl (I believe that was the one) can attest, much of this money was indeed spent on marketing. At the time, this made sense: let's establish ourselves with high profile commercials, designed to reach a huge audience.

But that didn't work. If only these companies knew then what we know now: these internet services don't need to be marketed to the masses. They only need to be marketed to a select few. Take websites and software like MySpace (please!), CDBaby, Delicious Library, and even Google: these are just a handful of current web success stories that are profitable, and they've never used television advertising. The goal isn't to reach everyone; the goal is to reach early adopters who will use and actually benefit from your product. The masses will come along...eventually.

I got caught two ways

[under_score]

First, I invested in some of those dot coms at ridiculous prices. I'm young, so it's not like I blew my life savings or anything, but still... lesson definitely learned.

Second, I worked in one of those never-quite-successful dot coms. A small company that started just late enough to miss the VC gold rush (or at least that's what we told ourselves). I had to exercise my options before I could tell if it was going to be bust. Regrettably it did bust. Oh well.

I'm feeling the heebie-jeebies about the housing market right now. Seems pretty similar: lots of institutional investment, lots of trendy discussion, lots of people moving around a lot... we'll see, but I'm not too hopeful about real estate right now.

Real Estate Bubble

[superpulpsicle]

Wait till this one pop. It'll have the dot com era seem so yesterday. Go to this website http://www.stock-market-crash.net/housing-bubble.h tm. In 1989 Japanese housing bubble, housing prices tanked for 13 straight years. US might do the same. The hi-tech industry is recovering alright considering the short period of time.

Slashdot dotcom timeline

[karvind]

We seem to cover dotcom stories regularly:

Dot ComBack, Or More Of The Same?

Dotcom Era Fads

Dot-Com Service Memories?

The Dot Com Super Bowl

Another Dot-com Boom?

*sigh* the goo' ol' days

Mistakes will be repeated

[tehanu]

The best thing is, the next "big thing" that comes along and the same people (plus some new investors who were kids the last time) will repeat the exact same mistakes that they did during the dot-com era. Never underestimate the power of human greed (not to mention herd instinct as everyone around you is screaming "Buy, buy, buy") to fool the mind into thinking "This time it will be different."

BTW while I have seen plenty of news articles about how stupid investors and companies were during the dot-com era, how about some insiteful self-criticism about the role the media (including the tech media) played in building up all the hype that helped produce the atmosphere that allowed these excesses to take place, esp. in light of how they profited from the era (eg. advertising)?

Ahh, eToys...

[Reverberant]

...brings back some memories...

Rocket cash anyone?

[Ledora]

Coca cola backed rocketcash was a pretty dumb idea. It was another virtual currency, I won 1000 dollar of it (yes it was worth that in USD) and tryed to order large amount on sites with it only to be harassed by their "partners" because all rocket cash did was fill in websites order info with your name and THEIR visa card. so I would get a call from (ebgames I believe it was) asking me to confirm my visa number and give them my DL # and all that and I would tell them ITS ROCKETCASH! I ended up having to call cokes marketing department and yelling at them. Anyone eles use that crap?

Boo.com and its Mac support

[cosmo7]

Boo.com became a cautionary tale by deciding that supporting MacOS was unnecessary. Although their target market was probably 95% Windows95, the journalists who reviewed the site were 95% Mac. Once you hit a screen that tells you that your OS isn't supported, you're probably not going to write anything nice.

Interesting Read

[eklitzke]

The article was very interesting, for those that actually RTFA. The article definitely brought back memories. On another note, did the GovWorks logo remind anyone else of the NetBSD logo?

Dot-Bomb Experience

[BuildMonkey]

I worked at a dot-bomb through the latter half of 1999 and into the beginning of 2000. We were building an online drug store to complement the company's mail-order prescription drug renewal business. The idea was that you would use the web site to input your prescription number, and while at the web site, would purchase deodorant, some bandaids, and mouthwash. In short, the hope was for the online experience to mimic your experience in a brick-and-mortar pharmacy.

There was a real brick-and-mortar, mail-order prescription drug fullfillment business footing the bill for this. It had been started by a father. He was semi-retired and had turned the business over to his two sons. The Web site was their idea and they were in charge.

We had a million dollars in middleware, a couple million in consulting to customize the middleware, an Orcale backend running on a high end Sun (E7500), and the Web site itself running on a top of the line, Sun E10k. At this point there was about $5 million sunk into the project, and we had not yet gone live.

Before going live, management felt the need to run a load test. At that point, you saw the IBM commercials on TV were dot coms went live only to see the site crash due to too much traffic. They didn't want to see that happen. The load tests showed that we could only handle 1000 simultaneous transactions. Clearly, that wasn't enough. So we bought another E7500, another loaded E10k, and another Oracle license. I don't know the exact numbers but I think this was close to another $3 million. With this new equipment and an additional DS3 line, we could handle 2500 simultaneous transactions.

Early in 2000 it comes time to turn the web site live and crank up the advertising. Tension was running high - and expectations were greatly disappointed. The largest number of visitors we ever had to the site was eight. We never had more than one active transaction.

I only stayed around for another couple of months. Before I left, the father, who founded the business and ultimately footed the nearly $10 million dollar tab, said:

It would have been cheaper to have phone operators and advertise that we would wrap every package in $100 bills.

Re:Dot-Bomb Experience

[(negative video)]

That's really sad, but ...

With this new equipment and an additional DS3 line, we could handle 2500 simultaneous transactions.

... what the hell were they thinking? Suppose 5e+6 people had bought from the site every month when their prescriptions needed refilled, with 50 page loads per sale, and $0.50 net profit per sale. That would be an overall net profit of $30M/year, which is pretty darn respectable. However that workload is only 96 page loads per second on average. Even accounting for load nonuniformity, the original system would still have been total overkill. Furthermore, if popularity had ramped up quickly, they'd have just been able to upgrade directly from the profits. Oversizing the machines was just pointless.

Why does money make people lose the ability to do arithmetic?

I blame Bob Metcalfe 8^)

[grcumb]

"If only these companies knew then what we know now: these internet services don't need to be marketed to the masses."

You hit the nail on the head. The level of misunderstanding at the time was immense. I vividly remember one keynote address at the 1999 World Wide Web Conference in Toronto, given by Bob Metcalfe.

Bob had this nice tight little riff he'd made up, wherein he announced that in order to thrive on the web, a company had to eyeballize, memberize and then monetize their website. His message, as much as any other, epitomised the Oklahoma-land-rush feeling at the time, where people grabbed turf first and asked questions later.

Unfortunately, some of those questions were rather nuanced. Like, for example, 'do you not like ads at all, or do you just not want to be distracted while you're reading online?' Google found the answer to that. Go.com and others did not, to their chagrin.

MSN has only recently begun learning the folly of 'memberizing'. And people are still struggling with the problem of 'monetizing' their websites.

At the time I heard Metcalfe's talk I remember shaking my head in disbelief. Now, don't get me wrong, I respect him greatly for inventing ethernet. But further proof of the folly of the Dot Com boom was the blind faith that investors put in the business acumen of the alpha geek. Visionaries, generally speaking, are not too great at dealing with the messy details of day-to-day life, and as often as not need to be protected from it (that's one good use for tenure in Universities, by the way). Investors allowed these same dreamers into the driver's seat, and paid in spades for the decision.

Ah, lessons learned...

[(H)elix1]

Alternative Minimum Tax laws are not just for the super rich. For those of us who happened to get in early enough into a dot com, work our asses off, go public, vest, exercise when they were high, hang onto the shares for 12 months for the capital gains taxes, watch the share price collapse in those 12 months, and got lucky enough to sell off before getting caught by some of the dumbest tax laws out there. I escaped by the skin of my teeth, and other I know did not.

SUNW at $85 was a deal. SUNW at $75 was even a better deal. SUNW at... Lots of new lessons on the stock market in general. Watched friends lose houses when trading margins.

PETS.com stock certificates made great white elephant gifts. Worth every penny. Just waiting for SCOX to get under $2 a share to do it again. It will be framed next to some of the other stinkers decorating my office.

Miss the beer in the soda machine. You can imagine our shock when a customer actually wanted a tab soda.

A Sun 440 is not needed for an email server. Makes for a lousy counter strike server too.

When the economy started exploding, the financials of the company were more important than the foosball table.

Remove the Diablo mule characters from CVS before you sell the company.

You can pour your heart and soul into work. Rarely matters. Never forget your family.

Hardly Accidental

[Markus Registrada]

Scams like BELO, like Pets.com, weren't idiocy at all. They served their purpose to perfection. The only mistake the VCs made was overreaching. Had they kept things toned down, the gravy train could have run on and on.

These companies weren't expected to succeed. The VCs even said so: profits didn't matter, sales prospects didn't matter, even embarrassingly stupid products didn't matter. What mattered was that large amounts of money could change hands with very little oversight. It was money launderers' heaven.

If you want to pay somebody off, buy their company at a massively inflated price. (No company to sell? Start one!) Want to hide paper profits? Stage a stock collapse. Want to reward a toady? Make him CEO or CFO of a startup. (The CEOs were all directors of one anothers' companies.) Want to pocket the investors' money? Have your CEO spend it all at your marketing or advertising service.

None of the money was wasted. It wasn't burnt. Every dollar went into somebody's pocket. Every dollar came from somebody else's. One group got most of it, another lost most of it. The ones who lost were pensioners, whose pension funds were "mismanaged" into oblivion. Did the pension fund managers suffer? Or did they make out like, er, bandits? Which do you think is more likely?

This is not to say that everybody involved was a crook. Lots of people worked really hard to try to make something new, and most of them suffered as much as the pensioners.

How do you imagine W funded his campaign? His father used banking fraud, and had to bait Saddam into invading Kuwait to keep son Neil (Silverado) out of prison. The W crew relied on more modern, less legally-risky securities fraud (Enron). They're not very imaginitive, though: count on the VCs to ramp things back up before the next election season.

Re:Hardly Accidental

[Markus Registrada]

You weren't there, were you? Lots of millionaires were plumbed, but they won't be tightening their belts. What was then the Fidelity Vantage Fund lost 16% in one year: mostly IRAs and 401Ks, retirement money. Were all the pension managers on the take? Any who sold off too early got creamed when their peers kept raking in paper profits; likewise, any analyst who predicted the crash a little too early.

Who needs grand conspiracy theories when garden-variety white-collar crime, venality, and regulatory restructuring suffice?

Banking regulation and oversight were gutted in the Reagan years, directly bringing about the "savings and loan scandal", thence the bailout which you and I are still paying off. It's a matter of public record that the Bushes were deeply and lucratively involved. Neil Bush's indictment (successfully buried during the war) is an embarrassing footnote.

During the Clinton years -- the Newt Gingrich years -- securities regulation and enforcement were similarly gutted. The subsequent "scandals" -- the dot-com bubble, MCI, Global Crossing, Enron, Tyco -- were trivially predictable, albeit not in detail. Anyone not committing securities or accounting fraud was leaving money on the table, a much greater crime. Bush's connections with Enron make another footnote.

Here's a page tracking one of those toady CEOs installed at startups, this the one who gutted LinuxCare. The CEO installed at Cygnus Solutions, just a year before it was sold out to Red Hat, waltzed away with $100M, more than all the founders combined.

The conspiracy theorist would say that enabling what they did (and what most got away with) was the whole point, but extremist ideology must be as large a factor as ordinary greed. However, it's not always so easy to tell the difference: an idiot ideologist and a clever crook may promote the same policies. Most ideologists aren't habitual idiots, but don't care to examine too carefully what benefits them and their friends at the expense of people they don't know. It's an easy habit, and it works better than actually conspiring.

Re:Crappy list

[Jah-Wren Ryel]

The EV1. WTF? Why the hell would you miss this.

Torque. That guy had more low-end torque than a lamborghini. Of course it cost more than a lambo too, but since it was only available through a lease the real price didn't matter to the actual drivers.

I personally find that there's basically no technology I miss. I find that I either like the new stuff better, or I can get the new equivilant of the old stuff for a better price.

I see you never owned the model of replaytv that automagically detected and skipped commercials during playback, no manual intervention required except in the rare case where it guessed wrong. No other PVR before or since has been so nice to use.

Re:Crappy list

[horza]

The EV1. WTF? Why the hell would you miss this. I got the chance to try one at high school, I forget which teacher arranged to have it shown off. The thing was underpowered to the extreme, didn't have long range and was apparantly plagued with failures.

I had a chance to try one of the first computers. Why the hell would any one want a computer? It was underpowered in the extreme, wobbling the rampack would lose all your data, and all the software you had to type in by hand out of 'listings' in magazines.

However that aside it was inefficent as hell. People like to pretend like it's non-poluting because there's no tail pipe. News flash: That power was generated somewhere and coal probably did the generation. Because of the multitudes of conversions of form the power underwent, the efficency was for shit. The straight mechanical transformation of an ICE was much better.

Newsflash: You've no idea what you are talking about. Already a fair percentage of energy is created by renewable energy and that percentage is growing all the time. You can even stick up some solar cells and charge the car yourself. The ICE is maximum 40% efficient, and performance degrades over time in cars, the pollution happens to occur mostly in densely populated human areas. In my town, Nice in France, the government is spending 320M euros on a tramway... which is effectively a bunch of electric busses. A lot of other european cities are going the same way. Whether electric or hydrogen powered, anything that makes the air we breath cleaner is good for everybody.

Phillip.

Drop in the Ocean

[OldCrasher]

While we feel close to the 'huge' losses of the dotcom boom/bust, we must not loose sight of the fact that two US corporations (Enrom, $80+ billion, WorldCom $74+ billion in 2000/2001 alone, and Tyco) probably account for more direct losses than all the dotcom spending. It was these big corporate failures trashing the stock market, that led to widespread losses amounting to trillions of dollars (billions from State pensions alone), that then brought down our favourite dotcoms.

The dotcoms may have been pretty fireworks, but they were not the monetary black hole that snak the economy.