The dot com bubble redux.
Nine years ago, internet stocks deflated. This time it's internet advertising.
We don't track individual visitors to the site, but queries we've gotten tell us that some readers are too young to remember the bursting of the dot com bubble in 2000 - 2001. The next section will bring them up to speed. Those of you who were witnesses to – or victims of – the events that followed March 10, 2000, might want to skip down to Resume reading here (link). Because memories of the first internet collapse can be pretty painful to folks who still have a stack of Pets.com stock certificates somewhere in the back of a file drawer.
The first dot com bubble. Contrary to popular belief – and his assertion – Al Gore didn't create the Internet. It was actually Dwight Eisenhower. In 1958, Ike created the Advanced Research Projects Agency which developed the wide area network (link) linking universities and research centers that evolved into today's Internet. It took eleven years to get the first network up, and the following year only five places were connected. But growth was exponential, and by 1995 there were 16 million people online. That's when things really took off.
Holland's 1634-1637 tulip mania had nothing on Silicon Valley's 1995-2000 dot com bubble. The Dot com startups' business model was to operate at a loss – sometimes with no revenue at all – to build size and share of mind. Investors and venture capitalists shoveled money at them as fast as the digi-gurus would deign to take it. NASDAQ peaked at 5132.52 on March 10, 2000. Then things took a turn for the worse.
Inktomi stock fell from $241 in 2000 to $1.63 by the time Yahoo bought them out in 2002. Webvan turned $1.2 billion in market capitalization to zero between 1999 and 2001. Shares in eToys.com went from $84 in October, 1999, to 9¢ fourteen months later. In all, more than $5 trillion in market capitalization – and a lot of companies and careers – disappeared in the dot com meltdown. Turned out that "no revenue, but lots of users" wasn't a sustainable business plan after all. For the next two years the big news about dot coms was their disappearance.
Resume reading here. So now we're past 2002, and the Internet is growing again. But now the growth is incremental rather than exponential. And most of today's dot coms actually have a business plan. The plans fall into two main categories.
Resume reading here. So now we're past 2002, and the Internet is growing again. But now the growth is incremental rather than exponential. And most of today's dot coms actually have a business plan. The plans fall into two main categories.
Some that are working include:
- Selling content. Dozens of B-to-B subscription information sites are viable businesses. Rhapsody and iTunes sell streaming music or downloads.
- Selling products or services. Amazon and other pure-play e-merchants are the hottest retailers out there after supermarkets and drug stores.
- Selling clicks. Feeding customers to on-line merchants with pay-per-click and pay-per-action display ads and videos (whether contextually or behaviorally targeted or simply scattered at random to a site's visitors). As long as the click is aimed at a direct retailer, this model is valid. It breaks down in branding. (See below.)
- Selling search. (OK, this mainly works for Google, but it really works for Google.) Putting a brand's site near the top of the column with paid search can make a tremendous difference in traffic precisely when the audience is interested in the product category. This is the strongest area of Internet advertising – the only one that's actually up this year.
- Selling listings. Provide comprehensive listings of product categories and taking a percentage of the sale or a sales fee. Works for e-Bay and Expedia. A close cousin is facilitating the sale, as Pay Pal does.
The successful online business models all share one key characteristic: they are transactional. That is, they focus on driving a single, immediate sale or providing a particular piece of information. That's what the Internet is best at. Creating preference, not so much.
What's not working:
(Read more at http://www.brainposse.com/.)
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