
Dr. Koop and The Bubble - johns
http://dcurt.is/the-bubble
======
SoftwareMaven
One big thing people don't ever talk about is how much more expensive it was
to get a site running back then. I was hitched to one of Utah's brightest dot-
coms in 1998, and building a basic web portal was a LOT of work.

Consider our building blocks: Oracle or MySQL and Java with servlets.

 _Everything_ else was written in house, because the open source alternatives
were all currently being written in-house elsewhere (or were too immature to
use). It took phenomenal amounts of work to get the most basic sites working.

To make matters worse, horizontal scaling barely existed at the data tier, so
the only answer was stupidly-expensive Sun boxes with even more-stupidly
expensive Oracle licenses.

For hardware, you had little choice but to buy boxes and drop them in your
ISP's kind-of-datacenter. Boxes purchased up-front, please.

We had about 15 engineers accomplishing about the same amount of work as the
two engineers at my current company. The difference in productivity astounds
me every time I think about it.

Now, all that said, companies were still _stupid_ with their money. We had as
many product managers as engineers at one point, because everybody knows it's
as hard to think up new features as it is to build them (I'm a product manager
now and understand the real work involved in good product management, and I
still think it was stupid). We made multi-million dollar deals that failed to
work out that a leaner company would never have touched.

When I look at the current environment versus back then, I see some very
interesting differences: first, the productivity enhancement means value can
be created for _far_ less money. As a result, many, many more companies are
getting a piece of the action. That is potentially good for investors because
it broadens their portfolios. That is probably good for entrepreneurs.

The other problem is there are very few perceived mega-winners. This means
that investors aren't getting many large returns and, when somebody smells
"jackpot", there is a frenzy. That is good for successful entrepreneurs.

But I'm not sure I would call it a bubble.

~~~
lifeisstillgood
That is a great summation.

------
qdog
I worked in Austin, Tx in late 1999 right across from the Dr. Koop building.
Even at the time it was amazing how much money they were spending/had spent on
things like that. I'm not sure they even fully moved in after it was built, or
if it imploded first.

Funny thing, I worked at a company that served the likes of ING and some other
broker-dealers at the time, and was about break-even on that business.
However, the lure of all the easy internet money was a siren's call, luring
the founder to try and grow into a 'portal' to attract eyeballs. That didn't
work out so well, however we were using Linux, Apache, Perl and only some pdf
processing software required MSFT at the time, and a free copy of Sybase (no,
I don't know why that was our db of choice, and it crashed as it was the
'free' version, not fun being the new guy/last man standing trying to recover
the db on live servers). Even at the time, it was hard to figure out how Dr.
Koop, Pets.com, Vignette etc. were ever going to make the money their IPO's
drew.

At the time, Amazon was also a questionable affair, but they managed to make
it, so it's not all hopeless. Some of the companies will make it, but so far
my ability to pick the winners is pretty slim.

------
jroseattle
Ah, the good old days.

It was 1999, we had just moved to Seattle, and all these people I had just met
who were in their early 30's were retiring from Microsoft. Not just from MS --
they were _retiring_. Near the millenium, with the stock sitting at about
$120/share, a good friend who had started at MS as a receptionist and moved
all the way up to program manager (a rather common title, in those days)
decided to call it quits. She cashed out, worth some $7.5MM, bought property
on the Baja in Mexico and left town. Never saw her again.

Then, after the bubble popped in March 2000, I can recall people losing their
million-dollar homes in Queen Anne because they had secured the purchase with
options on IPO stock. All the sudden, their paper was worthless -- and a lot
of people were left scrambling.

I remember stories of people who leveraged all this paper wealth, only to be
left upside-down in the blink of an eye.

Such foolish times for people with resources.

~~~
adventureful
There was a story about a couple from Texas that loaded up with most of their
personal wealth on Dell stock near its IPO point. Dell had IPO'd at a
particularly low price point (so cheap, $0.05 / share, that you'd still have a
240 fold return today from that first year potentially), so it didn't take
much to see huge wealth returned.

So as the stock kept going up, they kept leveraging up higher. They started
from a few hundred thousand invested, ended up around $40+ million (Dell was a
1,000 bagger in ten years), but were carrying some insane leverage against it
like $12 to $15 million at the peak. Never heard a follow up story, but they
claimed they planned to just keep letting it ride and pushing the leverage up
to boost returns - they had no concerns about a crash.

------
zinssmeister
Simply put, back then there weren't enough eye balls looking at websites. Now,
more than 10 years later, you see people use the web nearly nonstop. Back then
they were right when they said "The Internet is going to change the world",
but they got a bit too ahead of themselves. But maybe that's what it took to
get to where we are today.

~~~
firebones
You've got that right. Look at all that changed in 15 years in terms of what
it took to garner $43,000 in revenue compared to doing the same now. An
independent developer can, in less than the time it took Dr Koop to hit that
number, hit the same number with 1/1000th (if not 1/10,000th) of the capital
outlay (their $8 million in money), and nary a Microsoft product in sight.
Between fifteen years of open source, competition for infrastructure and
platform as a service, multiple revenue channels available to individuals and
several orders of magnitude more eyeballs and attention spent on the internet,
we can all party like it's 1997.

~~~
zinssmeister
Yeah the game evolved quite a bit. Heck if a independent developer has a bit
of a following and puts out an insanely great product, he can make more than
double that revenue over night.

------
dm8
Wow. I was too young when bubble started and all I remember is the talk that
"Internet is going to change the world". But if companies like the one
mentioned went public then I must imagine how bad situation might be at that
time. Currently, companies that are going public have some solid revenue
numbers and are in business for a while.

~~~
georgieporgie
True, but taking Facebook as an example, it's IPO'd with a 100:1 P/E ratio. It
would take 100 years at current earnings in order to pay for its current
value. So, the question is: will they double revenue for enough consecutive
years to bring that P/E ratio down? If they manage it, it will be a _very_
impressive feat.

(for the record, I'm not saying it's a bubble, and I'm not necessarily saying
FB is overvalued. I admit that they have a lot of bright people and are
probably the best-poised company right now to develop completely innovative
revenue streams)

------
drawkbox
It is funny now but back then content was scarce. The internet had really just
been introduced to the mainstream, 1994 is when I started to see normal people
get into it. The ability to publish something instantly now worldwide was a
wave still rolling with excitement. Growth opportunities were immense. We were
all mad.

------
feverishaaron
They also hired a direct mail firm (VentureDirect) as their agency of record,
and they were expected to spend around 10 million with them. Yet another
example of the crazy and flawed approaches to start ups and online marketing
back in the day. We all thought we were so smart. If only we had known better.

------
BradleyStC
If like me you were too young to witness the madness that existed back in the
.com bubble, an interesting documentary to watch is Startup.com. It's a fly on
the wall flick that documents the rise and fall of Govworks.com. (1998 - 2001)
from almost day 1. Although their fall seemed more attributable to poor
management than being bitten by the bubble, it's a good watch. (There's some
lessons to learn there about time spent wooing VC's vs. time spent growing the
business). I saw it for the first time yesterday...

<http://www.imdb.com/title/tt0256408/>
<http://en.wikipedia.org/wiki/Startup.com>

------
joezydeco
Does anyone posess an archive of fuckedcompany.com? Back in the thick of the
implosion, this site provided a daily ringside seat. It was amazing.

~~~
smacktoward
Pud eventually rolled the best of fuckedcompany.com into a book:
[http://www.amazon.com/Fd-Companies-Spectacular-Dot-Com-
Flame...](http://www.amazon.com/Fd-Companies-Spectacular-Dot-Com-
Flameouts/dp/0743228626)

(Yes, it's on Kindle)

------
earino
WebVan was great too. Some pretty impressive hubris.

~~~
muzz
I'm always amazed at the immediate discounting that is given to WebVan. They
had a long-term vision that will eventually be realized by some other company
or companies-- to have a van come regularly to your home, not only to deliver
things (like groceries, but also consumer goods, electronics, etc) but also to
pick things up while they are there-- your drycleaning, movie rental returns,
film rolls to be processed (it was 1999), etc. The long-term goal was
essentially a combination of Amazon, Netflix, FedEx, and lots of other
companies.

~~~
jt2190
I remember coming up with an idea for home grocery delivery using the internet
to place orders. (This was in 1995 or 1996 I think... before I'd heard of
WebVan) Ten minutes of scribbling on an envelope convinced me that the idea
could not be profitable, except perhaps for a niche market that was already
well served.

When WebVan arrived, I was curious to see how they'd overcome the obstacles.
They didn't.

No doubt someday, someone will make all of their "vision" happen, but it takes
a lot more than vision to make a viable business.

~~~
muzz
WebVan was profitable in the SF Bay Area from early on, and profitable in
Southern California as well. So yes they had a lot more than "vision". They
expanded too rapidly and the losses in those other geographic markets is what
did them in.

------
adventureful
I remember CommerceOne being worth $20 billion, and having a gazillion dollar
burn rate (they lost $3.7 billion over 10 years from 1994 to 2004). There was
a famous story at the time that the CEO wouldn't take Bill Gates' call because
CommerceOne was the future and Microsoft was the past.

Internet Capital Group was another similarly insane story, once worth $60
billion.

VA Linux IPO'd at a valuation of $7 billion if I recall, and had a roughly
700% pop on its IPO price.

Nortel and Lucent were worth $200 some odd billion, around the time Cisco
punched up to $600 billion. And those are in 12 year old dollar terms; Cisco's
valuation would be $900+ billion in today's dollar.

Infoseek was once worth $27 billion.

There was a great story in The Industry Standard or Wired about CritalPath, a
messaging startup that planned to solve the holy grail of messaging. It
intro'd with their team laughing about how a few pennies spent on a postcard
had secured hundreds of thousands in new business, and that their biggest
problem was dying of indigestion from growing too fast. Chuckles all around
apparently. The company was worth $4 or $5 billion at the peak, and ended up
bleeding out.

Masayoshi Son claimed that Softbank would end up owning something like 1/3 of
the entire Internet eventually. He said he was building a thousand year
empire. Softbank of course owned something like 25% of Yahoo when it was worth
$100 billion, Softbank supposedly owned 15% or some odd chunk of all Web
traffic, and Masayoshi was worth $70+ billion, just behind Gates.

Broadcast.com was purchased for $5.7 billion at a time when it had a mere $22
million in sales or so (and matching losses).

Yahoo paid $3.6 billion for Geocities. In that quarter, Geocities lost $8.4
million on sales of $7.5 million.

Viant, Scient, Razorfish, MarchFirst - billion dollar web development shops
and consultants.

There are so many stories to choose from. Pud chronicled it well with Fucked
Company.

~~~
dm8
>> CEO wouldn't take Bill Gates' call because CommerceOne was the future and
Microsoft was the past.

Were you referring to CommerceOne CEO?

Out of curiosity, how was AAPL doing those days? Was Jobs taken seriously by
Silicon Valley during those days?

~~~
JVIDEL
Jobs had just returned to AAPL and was cleaning up the mess left by Sculley
and Amelio

And no he wasn't taken seriously at all, he was still remembered as the guy
who created the abysmal AppleIII, botched the Mac and then got fired from his
own company.

In fact no VCs invested in his second company NeXT, only himself, Ross Perot
and Canon did. That company had to leave hardware altogether and was bought by
AAPL because they desperately needed a new OS, so ObjectiveC and NeXTSTEP
became the founding blocks of OSX and later iOS.

Back then Jobs only recent success had been Pixar's Toy Story.

~~~
adventureful
I disagree. There's a difference between valuing NeXT as a business and
valuing Steve Jobs as a visionary or creative genius. Investors didn't believe
in the business prospects of NeXT, but Jobs was still very highly regarded by
the valley.

~~~
JVIDEL
NeXT wasn't a terrible business and it had many of the same ideas that AAPL
uses today, like top-of-the-line industrial design.

Do you even realize there were 5 years between Jobs arrival at AAPL and the
iPod right? 3+ years if we count the time it took the iPod to become a true
sensation. Add to that 11 years since he had been kicked out from AAPL.

You seem to believe that Jobs was always in the limelight, when the truth is
there was a time nobody believed in him, and thus nobody would invest in his
new company not so much because of the business model but because he was in
charge.

NeXT actually sold for almost $500 million, hardly a complete failure, and yet
when he was back at AAPL nobody believed it would make a difference.

He was booed on stage while announcing the deal with Microsoft, how is that
being "highly regarded"?

Also consider that when Sculley fired Jobs AAPL stock went up dramatically,
not down.

~~~
adventureful
NeXT was a terrible business, it never turned a profit, and bled money
endlessly. The products were often good, but they were extremely expensive and
were never quite matched properly to a market. NeXT was such a terrible
business, Jobs was nearly at a point of having to shut it down when Apple
purchased it because it couldn't stand on its own as a hardware company any
longer.

The reason VC never touched NeXT was the hyper valuation Jobs placed on it
from day one. Before it had any products or any sales, he slapped a $100+
million valuation on it, which was a lot of money back in 1986, and a huge
valuation for any VC to touch without any sales or product.

It would have been trivially easy for Jobs to get VC money at a sane
valuation.

And yes, I realize there were five years between the iPod and Jobs arrival. So
what? The point was the iPod is what revived Apple and set it on a huge
upswing (which is also why the stock didn't move until 2003 as the iPod sales
rolled in). The work that was done on the iMac got Apple back to stable ground
as a business, the iPod sent it on a skyrocketing trajectory.

The valley absolutely believed in Jobs. He was a big reason the NeXT products
were often good, and the valley saw that. The fact that the valley believed in
him is why he was able to sell NeXT to Apple for so much money in the first
place, and why he was able to take the helm at Apple again in the second
place.

~~~
JVIDEL
Do you realize how absurd and contradictory you are being right now? NeXT was
an actual company and didn't get any funding while complete hacks like the one
in the article got millions and didn't even have a product.

A NeXT was used by TimBL to create the Web! Carmack used one to code DOOM, do
you even understand how prestigious this is?

And don't talk about NeXT as if Jobs was just an employee, it was HIS company,
he started it practically alone with money off his own pocket.

100 millions=insane? AAPL was a 4 billion company, and NeXT was full of former
AAPL employees, how is 100 million insane?

Right now you have startups with no strategy getting more funding and higher
valuations than NeXT because the founder is from Facebook or Google.

Again, when Jobs was fired he had already lost all momentum, where have you
seen a public company whose shares go up after firing a founder? That's how
bad Jobs' image in the Valley was.

------
georgieporgie
Near the peak of the bubble, I was at the gym in Phoenix, AZ. Two guys on the
stationary bikes in front of me were talking. "I just bought AOL at $ _X_
today." There was a look of resigned exasperation between them over how high
the buy-in was. "But hey, you know, it can only go up from here, right?"

That was about the time I started moving my 401k into bonds for awhile. :-)

Incidentally, for the younger folks, one of the interesting things about the
Dot Com bubble was that it coincided with mass interest in online trading. I
have no idea what the numbers are regarding the number of active individual
traders now versus then, but at the time you'd go to a party and overhear tons
of people self-identifying as day traders. Living through that taught me that
I really don't know enough about finance to pick individual stocks, and since
then I've left my money in mutual funds, index funds, and now an entirely
managed Vanguard account.

~~~
leak
Almost the same story a friend of mine told me about how he knew when it was
time to cash out. "I was at 7-Eleven and the clerk was talking to the customer
in front of me about what stocks they were buying. The next day I sold all my
stocks."

