eWEEK at 30: Web Expansion Drives Frenzied Dot-Com Boom and Bust
Pets.com appeared in commercials during the 2000 Super Bowl that featured the company's trademark sock puppet mascot. Pets.com was just one of the dot-coms that bought hugely expensive Super Bowl commercial time. But it didn't help Pets.com very much. The company was out of business before the end of 2000 But this was just one example of the unbridled spending that was the hallmark of many dot-com startups in this era. "I'd see little companies in very expensive locations that had very high costs per square foot. I'd always seen companies started by people in the past who even minded the cost of paper clips," said Kusnetzky. "I also saw a lot of people [at the time] spend a lot of money on marketing events" for their new products or services. They never bothered to connect that to how many sales they would get. It was pretty fascinating." Rob Enderle, principal analyst of The Enderle Group, blamed the initial dot-com crash on "a feeding frenzy of investors wanting in on Internet companies started by kids who never went to business school.""[Eventually] the investors figured out that these dot-coms were black holes that worked more like a high-speed Ponzi scheme than as a business, and then the market collapsed, leaving the last set of investors screwed." Charles King, principal analyst with Pund-IT, told eWEEK that during the dot-com boom in the mid-1990s, the key business proposition for many was to take the Amazon idea of e-commerce and extrapolate it to address every conceivable vertical and market segment. "There was a fine line between a vendor that was enthusiastic about a particular idea and the instincts of investors who are trying to ride that to a few million more bucks." In retrospect, King said, few people seemed to see what could happen as the dot-com bubble grew at the time. King said he "was working with some very smart people at the time," when he was at the former Zona Research. "It was exciting coming to work and people were doing cool stuff. No one that I worked with on a regular basis foresaw the size and the scope of what would happen. At the same time, I wasn't privy to every idea from everyone. It's not something that we kicked around." Dan Maycock, an analyst with OneAccord Digital, told eWEEK that it's only a matter of time until it happens again. "Absolutely, because the tech bubble now is that companies do not have to be profitable to be worth a lot of money," said Maycock. "It kind of flies in the face of common-sense economics, but a lot of companies can get these massive buyouts because they can drive a lot of people to their sites" and generate huge valuations. "I think we're definitely liable to have another bubble for sure, but it won't be for the same reasons."
Those startup leaders "thought that profit and revenue were terms only used by old, clueless people and that treating IPO funds like you would an allowance—to spend it on fun stuff as quickly as possible—was the smart thing to do," said Enderle.