PoP_ch4
dot com bubble

talk about the peak of inflated expectations [Gartner Hype Cycle]
https://en.wikipedia.org/wiki/Gartner_hype_cycle

Get big fast, get big, fail big

Real economics (product value) fell by the wayside in favor of brand and “mind share.”
Eyes, yes, and clicks. But mostly “cred.”

Some was the result of the Venture Capitalist funding model for entrepreneurship

	-Friends, family, and fools. They love you but are seldom smart investors
	-Banks (and eventually, your credit cards) They require collateral. 
	-Angels. They want you to succeed, long term, but won’t give you very much $ relative to what you might really need. More than F&F and Banks/cards, but not as much as VCs.
	-VCs. They don’t care about the long term. They want from 2 to 10 X their money back inside 2 years. Then they are OUT. They miss often so need/want to HIT with BIG WINS now and then.
	
VCs came to rule the Valley. So, “the big show” starts to play. 

“driven by risk capital investment, a term used here to indicate the short-term speculative investment typical of entities such as hedge funds, private equity firms, and venture capitalists.”

Vicious circle: HUGE funding based on a great pitch and a few initial eyes; purchase loads of adverts to get your .com in front of many eyes; over-promise; do a 2nd VC round: the press is GREAT when big money invests in your .com; buy more adverts.  GO PUBLIC (IPO—initial public offering)… that can raise a LOT MORE money. Pays off the VCs. Makes founders rich (maybe). But that ties company value to ACTUAL MARKET VALUES and once the market realizes there’s nothing there, bam. Straight into the dumper. 

“Invest in a start-up with significant growth potential, spend capital to swiftly increase market share, and then realize profits by cashing out via an initial public offering (IPO) or acquisition deal.”

case in point: Netscape. Started out as a research project, funded by the feds, in grad labs at U of IL.
(Mosaic). The grad students split with the code (Andreesen), built a new browser on it, and moved from $21M to 2.2B in value in a couple years.

This all jacked up internet adverts . . . all of a sudden, internet ads seem like they are worth a lot. That bolsters the advert networks (double click)— then google buys double click… the amount of data produced increases exponentially… etc. another spiraling cycle.

The Marketing/Finance Feedback Loop

The problem was: too many of the companies were, essentially selling vapor ware.

NOW: Facebook and Instagram and Google are a form of vapor ware. They don’t make a thing. Google has a modest “service” aspect, but mostly online new media dealt with 3rd party content. The .coms themselves didn’t make anything.

“All told, an estimated 24,000 internet-related firms raised $256 billion from public and private investors during the bubble.”

in 1999: SME ratio for .coms was 94%. 
ya can’t make money at that ratio. Period.
(off line retailers were around 25-40%)

The advertising was focused more on investors than on the buying/spending public. Sure, the public SAW the adverts, but the idea was to impress the big spenders so they’d invest and you could go IPO.

in 1997 double click was valued at $100M… an unheard of value for a start up. Post IPO: 400M first trading day. Market cap of $10.7B by 2000.

CMGI was a competitor, but not for long.

Double click bought NetGravity and increased their publisher base by 1/2.Merged with Abacus Direct; merged with Value Click, Opt-In email, FloNetwork, Flashbase
(at this point, double click was probably liable for anti-trust litigation for unfair competition). 

in 2000 double click served 621B adds, more than 200,000 more a day than in its first entire year. 

““The bigger your [profile] database, the more targeted you can be.”110 Consumer data became a central factor in “dictating merger and acquisition strategy for the industry’s leading players,”

Problem was: no one was actually MAKING MONEY. Almost all online companies lost money in this period. 

“the dot-com bubble shielded surveillance advertising companies from the pressures of profitability, enabled their rapid expansion, and funded a significant buildup of consumer monitoring capacity. Eyeing a future beyond the bubble and seeking to conquer the online advertising market, DoubleClick kicked off a commercial surveillance arms race, bankrolled in large part by speculative capital.”