Google and Doubleclick, Yahoo and Right Media, eBay and StubHub, and now Microsoft and Yahoo, As mergers and acquisition fever hits the online world again, observers are asking whether the dotcom boom has returned. So is it same old same old, or is it different this time?
If the late nineties and early noughties will be remembered for anything it will be for the dotcom boom and bust. There was unbridled creative enthusiasm that saw the launch of thousands of companies based around the internet. But with it came the cynical exploitation of the hopeful credulousness and greed of venture capitals and their investor camp followers.
Some launched companies they hoped would change the world. Others launched companies designed to part investors from their money.
And for the investment community, there was the phenomenon of speculative momentum – the recognition that future earnings don’t (and never would) justify a stock price, but that this doesn’t matter as long as the market’s rising, and as long as you can sell before the bust. The trick was not to avoid stocks that had no ‘real’ value as conventional wisdom might tell you, but simply to aim to leave somebody else holding the baby when reality catches up.
Riding this wave of cash came a pack of enthusiastic businesses characterised by their often hazy idea of how they’d make money. Kozmo, the courier service that would bring you a Mars bar for no delivery charge, discovered too late that this wasn’t a route to riches and introduced a $10 minimum order. Surprisingly as it might appear, they even had competition - Urban Fetch suffered a similar fate, ceasing trading as the market crashed.
Pets.com had the distinction of being one of the shortest lived companies on Nasdaq – going from IPO in 1998 to bust within 9 months. Boo.com in the UK raised millions to back their vision of an online fashion store, but collapsed under technology that failed to live up to the promises, and general mismanagement that included putting a call centre in Soho.
Books have been written and films have been made about this remarkable period, most focusing on the slightly more bonkers businesses that burned cash brightly for that short time. But out of this, some very serious and successful businesses have emerged.
And behind this success lies one important fact. Despite the ups and downs of the global advertising and stock markets, there hasn’t been a day when the number of people connected to the internet fell. Marketers and stockbrokers might have abandoned it, but every day, inexorably, the audience has grown.
What we have now is a mass-market medium, with an immature economy of businesses around it. So consolidation is inevitable as companies seek to remove costs, and acquisition is expected as players jostle for position.
And not for position in a market that’s ceased growing. The stakes are already huge, but massive expansion is still expected in the digital economy. The online advertising market is already £2bn in the UK, £8bn in the US. But whilst the UK expects over 30% growth this year, the share taken by online advertising in the US is still half that in the UK, so American publishers expect even stronger growth for the next few years. On the retail side, the IMRG claims that online sales already represent a 10% share of UK retail – whilst only half of the top 100 retailers have transactional websites.
Valuations might have started to look like those in the dotcom boom, but there are two crucial differences. First, there are real earnings to be multiplied. Second, the true scale of the prize for the winners of this global jigsaw competition is starting to be more widely appreciated.
As the players compete to assemble the pieces of their puzzles, they’re driven by the knowledge that there won’t be enough pieces for everyone to make a picture. What they believe is at stake is the future of retail and media, and that’s a pretty big prize.