The Dot Com Bubble — Part Two?
In the late 1990s and early 2000s, the world went crazy over websites based businesses with absolutely no revenue model. Hundreds of millions of dollars were sunk into the “.com” bubble. Now, those models have evolved into billion dollar industries such as data mining, shopping online and advertising. As the new gTLDs prepare to launch, I can’t help but ask, “What is the bubble in the .anything paradigm shift?” And, what happens to all those companies who paid hundreds of thousands of dollars or even millions for their .com – what’s it worth now?
After years of venture capitalists pouring billions into dot coms and often paying millions just to acquire the .com name, only to have the lion’s share of those companies completely flame out, is it any wonder that ICANN determined a high barrier of entry was required in the next generation of the Internet ($185,000 to apply for a gTLD)? No one may be crying over the lost VC money, the trickle down impact on the stock market has been felt by all. A brief history lesson provides some guidance. For example, according to John Cassidy in his book dot. con, the biggest venture capital deal of 1999 was $275 million for Webvan, an online grocery store. Two months after starting, it filed for an IPO, which was a new record in the craze of .coms filing for IPOs. It had lost $35 million on sales of just $395,000. Following this IPO, others quickly followed: egreetings.com, mothernature.com, smarterkids.com, ecollege.com, toys.com, pets.com and kozmo.com. The commonality among all of these companies – they had no revenue – only venture capital backing. The venture capitalists were actually creating wealth out of nothing by speculating and launching IPO campaigns. Journalists soon began to realize that the jig may be up. Pegasus Research International predicted in early 2000, that within twelve months at least fifty Internet companies would have no money left. And on Friday, April 14, 2000, ironically 88 years to the day after the Titanic sank, CNBC and CNNfn reported that prices were rising faster than any point in the last five years. Waves of selling began to hit the technology driven NASDAQ. Afternoon margin calls added pressure and the Dow was down 617.78 points and the NASDAQ was down 355.49 points at closing. This was the biggest percentage fall since Black Monday, October 19, 1987. In just one week, nearly $2 trillion of stock market wealth had been eviscerated. This became known as the Internet bubble bursting. Jim Cramer said “The Gold Rush is over” and the days of entrepreneurs raising money on just an idea to an end. For companies that had created online divisions or tried to spin off Internet businesses, it was time to rethink everything. The .com craze had a string of irrational investing that came to an end. Or, did it?
blog graphic 2
What should we expect in 2014 as the first wave of new gTLDs start to launch? Will the same irrational exuberance emerge? Will companies based on ideas in the digital frontier receive the same enthusiasm or valuations? In my book, Domain Names Rewired, I asked a few experts how they compared the expansion of the internet with new gTLDs to the .com era of the 1990s.
The dot com phenomenon is a great analogy, though now people are a more educated about how they use the Internet so presumably there won’t be exactly the same learning curve. The million dollar question is how this new expansion will change the way people use the Internet. No one knows for sure, but the change is coming.
Claudio Di Gangi of INTA
Much like in .com, the good ones will succeed and the bad ones will fail. It’s all about having a good strategy, a good business model and delivering it to consumers.
Steve Miller and Katie Ruwe, The Procter & Gamble Company
The biggest similarity is like in the .com era, most businesses don’t see the need for this or where the benefits are. Like in .com, those reasons will emerge. What will be different is the explosion of new business models. Brands or closed systems will migrate to a new way of building and protecting their brand. Registry operators and registrars will make their money through sunrise and sale of critical domain names. We likely won’t see the same irrational investment in startups.
Russ Pangborn, Chief Trademark Officer, Microsoft
While the new gTLDs may not create the same flurry of immediate IPOs as the .com generation, entrepreneurial opportunities will flourish as the new gTLDs provide a platform for new and creative thinking. Technologies to capitalize on the benefits have not even been invented yet. Some venture capitalists have dived in with big investments in the new TLDs, but others will follow with business models and technologies to support the new frontier – just like they did 15 years ago. Where there is new emerging technology, consumer experiences and scaled expansion of anything, there is opportunity. Some will fail and a bubble may burst, but as we look back on the last fifteen years, we can see a new generation of companies was born out of .com. What new companies will begin forming as the new gTLDs launch? Stay tuned for predictions for 2014 in my next blog.