A tale of two dot.bombs

Investment, optimism, decadence, collapse….Where did it all go wrong for the dotcoms of the late 1990s?

Sandy Starr

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Topics Politics

The dotcom boom of the late 1990s spawned a wealth of literature claiming dotcoms to be the new economy. But now, retrospectives of the dotcom boom already treat it as if it were ancient history.

Two new books about dotcoms – both called dot.bomb – have already been published, and a third with the exact same title is due out in November 2001 (1). In early 2002, two books called dot.con are being published (2). There is clearly a trend.

Of the two dot.bomb books already out, one is about the UK and the other about the USA. Rory Cellan-Jones’ dot.bomb: The Rise and Fall of Dotcom Britain describes how ‘it seemed…between the summer of 1999 and the spring of 2000 that half of the population of Britain had an idea for their own dotcom scribbled on the back of an envelope’ (3), and how a London area ‘stretching from Brick Lane through Shoreditch and Clerkenwell’ became known as ‘Silicon Ditch’ (4).

J David Kuo’s dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash tells the story of Value America, an online retailer that for a short while was a serious competitor to Amazon. At Value America’s peak, a former national security adviser to Ronald Reagan became its chief of staff, there was talk of Hollywood star Tom Hanks becoming its spokesman, and company founder Craig Winn anticipated ‘a run for governor of Virginia in 2005, followed by a shot at the White House in 2008’ (5).

Both dot.bomb books benefit from fiction’s classic three-act structure: humble beginnings, days of bread and roses, and spectacular fall. And both are as entertaining as any work of fiction.

Cellan-Jones’ story starts ‘at a time when much of the world had not yet even heard of the worldwide web, and the term “ecommerce” was yet to be invented’ (6). Kuo’s kicks off at a time when ‘few Yahoo!’d, America Online was just a dorky company in a bland Virginia suburb, and the expression dotcom sounded odd in conversation’ (7).

Yet, within the first few chapters of each book, we are in the heady days of dotcom fever. Craig Winn dines with former US secreatary of state Henry Kissinger, and is named ‘prince of ecommerce’ by Chief Executive magazine. lastminute.com founder Martha Lane Fox has her picture unveiled in London’s National Portrait Gallery, and suddenly, in the UK ‘the roll-call of business leaders familiar to the man and woman in the street did not begin and end with Richard Branson’s name’ (8).

The books give a fascinating fly-on-the-wall peek into the lives of the dotcoms. Cellan-Jones describes how ‘excessive hours were worked by young managers and software engineers…Excessive amounts of drink and drugs were consumed…Excessive amounts of sex were the talk of many a dotcom office – but in reality most people were just too tired’ (9).

The positive sea change in business climate comes with new company valuations that place dotcom stocks and shares at values way above company revenue. Cellan-Jones explains how the London Stock Exchange ‘painstakingly worked out new rules that would allow a company just nine months old and with no profits on the horizon to join the corporate big league’ (10).

The same thing happens in the USA. Craig Winn is shocked to discover that contrary to his prior business experience, ‘with the new internet math, companies were valued at a multiple of forward value’ (11). This ‘internet math’ backfires during a meeting with a retail conglomerate, whose executives laugh at one of Winn’s memos. Winn asks them ‘Don’t they teach you how to read where you come from?’, and they reply ‘Yeah…but they also teach us to add. What’s your excuse?’ (12)

Cellan-Jones does a good job of putting the dotcom hype in perspective. When ‘journalists…started writing in glowing terms’ about lastminute.com, it ‘still had a smaller turnover than the average petrol station’ (13) – and when it ‘had the turnover of a reasonably successful London pub…it was now worth more than many long-established and very profitable companies’ (14). Cellan-Jones’ unflattering potted history of Clickmango goes like this: ‘two young men started a health shop, made less money than my local Body Shop rakes in from peppermint foot balm, and then closed down.’ (15)

At their height, the dotcoms were extremely decadent. Winn builds a personal kingdom, Winndom, the dotcom equivalent of Xanadu in the film Citizen Kane. Cellan-Jones describes a Jewish teenager suffering from ME who convinced the media that, despite his affliction, he had created a profitable, spiritually oriented online Jewish community – but points out that his money allegedly came from a sideline as an internet porn baron.

Such decadence is always mixed with desperation – even at the height of the boom. As Cellan-Jones says, ‘the strangest aspect of the dotcom madness…was that by the spring of 2000 just about everyone knew it was mad’ (16). Value America is so stretched for resources that the pilots of the luxury company jets double as customer service reps between flights. The company is so desperate to drive up sales at one point that it promises to humiliate all of its executives by ritually dunking them in water if targets are met, as an ‘intangible incentive’ to the sales team (17). The target is met, the promise is kept.

So what went wrong? The books outline the painstaking hard work and good ideas that went into dotcom companies – but also the mistakes. Apart from reckless spending, Cellan-Jones points out that ‘technology was what made dotcoms different but, bizarrely, it was a part of their business that many of the start-up companies seemed to neglect’ (18). He recounts in painful detail how, when the much-hyped boo.com launched its website, the website took eight minutes to load and had 396 technical bugs, while its workers (according to an ex-employee) ‘were out every lunchtime getting shit-faced’ (19).

Technical problems ‘led many people in the Value America technology department to ask a very important existential question: “If someone visits your web page but leaves before he sees your web page, has he seen your web page?”‘ (20) So busy are the Value America executives wheeling and dealing that only eventually does it dawn on them that ‘the only way to explain our not showing up on various lists of top websites was that no one came to the store’ (21). And only eventually do they realise that the average hold-time for customers on the phone to them is 45 minutes.

Then there were the legendary personality clashes. As Cellan-Jones says, ‘dotcoms are classic people businesses – and if the people do not gel, neither does the business’ (22). Value America’s Craig Winn starts out as a confident, experienced huckster – but ends up as an eccentric, compulsive liar who alienates his colleagues and puts them in impossible predicaments.

Much of the personal tension comes from a blurring of the boundary between work and private life. When J David Kuo was working for Value America during its heyday, he ended up recruiting his fiancé and two of her relatives into the company. By the time he got married, he wondered if he could ‘deduct the wedding as a business expense’ (23).

As in the recent documentary Startup.com (24), in which a dotcom CEO takes the entire company to his parents’ house for an adventure weekend, the dotcom crash ends up threatening not only your livelihood but your personal relationships as well.

The real tragedy is that there was and is genuine potential to many of the dotcoms, as well as some laudable instincts behind them. Kuo puts it well when he says that ‘Like a lot of Generation Xers, I wanted a purpose – I wanted to make a difference…It was definitely an idealistic/utopian/pie-in-the-sky feeling, but it was a highly motivating idealistic/utopian/pie-in-the-sky feeling’ (25). And according to Cellan-Jones, ‘To anyone trapped within the confines of a traditional organisation, the possibility of escape not just from the assholes but from all the tedious paraphernalia of corporate life is very attractive’ (26).

When the dotcom sector crashed, the vehement cynicism that followed was, if anything, even worse than the blind optimism that had preceded it. Those who ‘smirked as lastminute.com’s share price sank’, who ‘chortled as boo.com collapsed amid revelations of extravagance and management incompetence’ (27), did not make any contribution to the lessons learned from the period.

Cellan-Jones rightly derides the hypocrisy of ‘pious talk from venture capitalists and analysts of how regrettable the “get rich quick” attitudes of so many firms had been’, given that ‘a few months earlier those same people had been trampling each other in the rush to cash in’ (28).

Value America was the USA’s first major dot.bomb, folding on the penultimate day of the twentieth century with what was then the biggest internet layoff of all time, and kicking off the dotcom backlash. UK dotcoms, which had barely had time to catch up with the heady success of their US counterparts, suffered the same fate only five months later.

Today, as Cellan-Jones puts it, ‘the internet is there in the background, gradually infiltrating more aspects of the way consumers and corporations behave. But just like personal jetpacks and holidays on Mars, the future is further away than we first thought.’ (29)

Despite the existence of plucky dotcoms like spiked holding the fort, you can’t help feeling that the business world has gone nowhere near pushing the internet to its fullest potential.

Buy Rory Cellan-Jonesdot.bomb: The Rise and Fall of Dotcom Britain from Amazon (UK)

Buy J David Kuo‘s dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash from Amazon (USA)

Sandy Starr has consulted and written on internet regulation for the Organisation for Security and Cooperation in Europe, and for the European Commission research project RightsWatch. He is a contributor to Spreading the Word on the Internet: Sixteen Answers to Four Questions, Organisation for Security and Cooperation in Europe, 2003 (download this book (.pdf 576 KB)); From Quill to Cursor: Freedom of the Media in the Digital Era, Organisation for Security and Cooperation in Europe, 2003 (download this book (.pdf 399 KB)); and The Internet: Brave New World?, Hodder Murray, 2002 (buy this book from Amazon (UK) or Amazon (USA)).

Read on:

spiked-issues: Don’t Blow IT

Shutdown.com, by Nancy McDermott

(1) dot.bomb: Surviving (and Thriving) in the Dotcom Implosion, by Sean Carton. Buy this book from Amazon (UK) or Amazon (USA)

(2) dot.con by John Cassidy (Buy this book from Amazon (UK) or Amazon (USA)) and dot.con by Peter Lilley (Buy this book from Amazon (UK))

(3) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p140

(4) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p127

(5) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p84

(6) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p10

(7) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p11

(8) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p5

(9) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p6

(10) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p38

(11) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p24

(12) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p173

(13) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p51

(14) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p3

(15) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p130

(16) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p202

(17) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p130

(18) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p48

(19) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p78

(20) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p153

(21) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p255-256

(22) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p90

(23) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p230

(24) See Shutdown.com by Nancy McDermott

(25) J David Kuo, dot.bomb: Inside an Internet Goliath – from Lunatic Optimism to Panic and Crash, p136

(26) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p145

(27) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p5

(28) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p221

(29) Rory Cellan-Jones, dot.bomb: The Rise and Fall of Dotcom Britain, p243

To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.

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