Dr. Koop and The Bubble
dcurt.is
dcurt.is
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.
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.
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.
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.
(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)
http://www.imdb.com/title/tt0256408/ http://en.wikipedia.org/wiki/Startup.com
You can just roll forward on the date line.
"Epods makes 2.2-lb portable internet searching devices. They just laid off 50 more, the second layoff, bringing them to 24 people down from 100."
(Yes, it's on Kindle)
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.
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.
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?
I don't think Wall Street believed in Apple much, or that Jobs could turn it around - Wall Street didn't see what he did of course. You can see that in the stock valuation that Apple received during the bubble days, it didn't pop even a fraction as much as other stocks like Sun or Oracle (Sun was worth $150+ billion or so, and Apple around $30 billion; granted Sun was riding a direct wave benefit with their hardware that had sent their revenue parabolic).
At that time Apple was selling the iMac, remember this was years before the original iPod.
The running joke amongst VCs that were funding companies like Google, VMWare, and Salesforce.com was that Apple was "selling colored plastic"
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.
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.
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.
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.
This is really good to know. Nortel has a pretty significant presence here in Dallas, TX and I remember hearing stories that they were handing out brand new Porsches to new hires that signed on with them in the 90s. I never understood how much money it would take to see that kind of excess, but now I know.
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.