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The (REAL) Reason Why DOT COMs Imploded

By Roy D. Follendore III

Copyright (c) 2002 by RDFollendoreIII

October 9, 2002

The primary reason why DOT COM businesses imploded is not because of what they were but because of what the Internet is.  The Internet is a massively open and free system for distribution.  It can carry the worst digital information or the best and the price is exactly the same.  There is no real "deluxe"  Internet.  This is what the DOT COM companies were trying to create.  "Come here and we will present the information you now get for free differently."   "No, come here and we will combine your already free access to make things more convenient for you!"    The revenue stream was not within the delivery.  There was no COD.  The only things that most DOT COMs had going for it were the massive throughput of potential customers and advertising sales.  This was not true for EBay, who essentially are a transaction advertising solution.  They take a portion of both sides of the deals that they broker.   It was also not true for Google, who provided such a powerful free service that they have been able to maintain operations with slim advertising.  

My objective was to produce a product which brokered not just data and information but compartmented knowledge.  The product was to have been a secure dissemination of fine grain knowledge.  (This remains a wonderful product concept.)  The problem with my business approach was that in order to accomplish it I needed funding at a point in time when everyone was clamoring for funding.  The noise in approaching the VC for capital investment was defining the opportunities of the investment.  These people not only could not hear my message, they were unprepared to understand my message.  I might get questions like, "Why is fine grain information any different from whole grain?"   After they then overlooked the importance of the answer to that question they might then go on to ask; "What makes your product any different from that other off the shelf product?"  At that point I would feel like saying, "You bastard, didn't you get what I just told you?"  "How many times does it take to explain that fine grain transactions are the equivalent of to knowledge, what bits are to packets."  The idiots were not qualified to understand the most fundamental implications of the technology.  Moreover, they were unqualified to fund DOT COM companies because the investment instruments they used were unbalanced.

The reason why DOT COMs imploded was because the funding mechanism imposed operational concepts on them that the market was unable to support.  The only way to make money on the Internet is to either emulate the standard economic model on a massive scale or to fundamentally change the nature of the Internet through technology.  DOT COM businesses emerged as embryos unable to sustain themselves.  They were funded using exactly the wrong strategy.  Instead of asking the question "How will the world change through this product?" they asked "How is this product different?"   They false assumption they made was that these are the same questions.   They are not.  A passenger sitting in a donkey cart and a passenger on a jet aircraft may get to the same location because they sit on a seat. You might say that the difference is not so much in the fact of having got there, as it is in the side effects of the way there was got.

The DOT COMs imploded not because there was too much vision but because there was not enough.  VCs were more interested in protecting exit strategies rather than risks.  In their risk avoidance models they forced incremental solutions which they felt would be more acceptable to the initial public offerings over more powerful solutions that could drive market opportunities.  In doing so they lost the vision of what the Internet is all about.  If there is one thing that the implosion of the DOT COMs and their investors have come to better understand, it is that the Internet is one lover that will not be ignored.  

The next time that you consider investing her, just make sure that you not only look at the company products in the right way, but also take a close look at the VC who imposes their burdens.  






Copyright (c) 2001-2007 RDFollendoreIII All Rights Reserved