The Dot-Com Bust’s Worst Flops Were Actually Fantastic Ideas

Not all, but many of the failed dot-coms can be summed up as offering Service X at a price that people were willing to pay that happens to be less than the cost of delivering the service.

If I can relax the price > cost constraint there are any number of fantastic ideas that I can come up with. Private jets for the price of commercial. A driver for $1/hour. Etc.

Grocery delivery can be a perfectly fine business but, like most services that fundamentally offer convenience, it's also a premium service that people need to be willing to pay for--and the business plan needs to recognize that fact. And, as is often true, grocery delivery seems to make the most sense when it can piggy-back on a standard self-service grocery business.

1) How many people were online?

2) How many people had credit card info online?

3) How many people trusted WebVan (vs. Amazon, which built trust over decades)

4) How many people had portable computers in their pocket at all times, with instant access to your service?

Saying "X is a good idea" doesn't make sense without the surrounding strategic context.

If one judges new things through the lens of mainstream media and not by actually seeking to understand the new thing then of course it'll seem like a "never-ending hype-machine". Seems to me you might actually be gaining an understanding of how the media works and confusing that with an understanding with the topic they're talking about.

I suppose you could argue that several million dollars a day doesn't amount to a "huge role," but let's not pretend that it's just hype and mining.

[1] http://www.coindesk.com/bitpay-now-processing-1-million-bitc...

Then again, that doesn't mean it wasn't a bubble- the irrationality is in how viable the businesses themselves are, not the ideas, as many more ideas have a kernel of value than what we think, but it's a question of execution, timing, and luck. We might still be heading into another bubble now. Or maybe we've just gotten very, very good at closing the convenience gap.

Bubble actually helped to some extent promote tech and created jobs. Many companies after bubble survived providing jobs and offering safe harbour for employees, startups and investors.

more seriously though, time is as much a part of good ideas as any other component. Google glass is probably a good idea, but also ahead of its time. Even if every other part of the execution is perfect, people need to be ready to accept it.

1) The idea may be something people are willing to pay for, but when given an inordinate amount of money with which to execute it, people go overboard on spending and create a business that is unsustainable if the money unexpectedly goes away (even if the idea itself would have been sustainable if they had started off with less but more predictable resourcing).

2) The idea may be a thing that people want, but costs more to execute than customers are willing to pay (and thus can only be financed in an irrational bubble).

In both cases the ideas are for things people want. You can't judge a business by the idea alone.

http://en.wikipedia.org/wiki/Peapod

They were OK for my needs when I was using them. Invariably they didn't have everything in stock and didn't have the breadth of selection you have in the store. (And, of course, you can't examine the produce, etc. before buying.) For my needs at the time, they were worth it but under normal circumstances it's easier and cheaper just to swing by the store a few miles down the road.

1) are customers ready for it? Will they see it as a weird idea that they'd never spend money on, or as a quality of life improvement? Ten years ago I'd have thought buying kitchen towels on the internet was a crazy idea when I can drive 3 blocks to the store to get them; now I think it's crazy to take a trip to the store for one thing when I can get a better selection and better prices on amazon prime.

2) is the technology / infrastructure you need to implement it in place? Apps related to local travel became much more viable when people started carrying portable computers (with telephone functionality) everywhere they went. Niche resale became much more viable when you could plug in to a pre-existing marketplace (ebay, amazon) with an existing customer base, payment processing, etc. so you don't have to spend big bucks developing those things yourself.

The money, in our case, came from a large north-european telco with deep pockets. They turned a blind eye to the burn rate for almost 2 years before pulling the plug.

I've heard of a German tech company hiring a philosopher, you know, just for fun. On a superficial level, this might seem comparable to Google hiring Ken Thompson, Guido van Rossum and tytso. In reality however these folks not only boost Google's reputation among developers, they innovate and make a technical contribution to the company. That precisely is the difference between 90's dotcoms' thrift-spending habits and how companies work today. The article misses that completely.

They did because they could. I'm sure you remember the ungodly amounts of money that were being thrown at everyone with a two-bit idea back then.

This.

Saw this first hand with several companies. I was with a telecom CLEC and we were in a building jammed with startups in the late 90's.

I would agree with all your points and also add most of the companies I saw guys who had been toiling in middle management their whole careers, suddenly got a shot at running their own show. They got drunk on the money and power and ran most of the companies into the ground by burning through their money and making asinine decisions.

The CLEC I was working for was a perfect example.

When I was brought on as a sales person, this was the pitch in the interview:

"We want our sales people to be the highest paid sales people in the industry. We're going to offer more salary and more commission then any other CLEC in town," This was a CLEC who had 15 employees, and were trying to hire three sales people.

Their commission structure would be outrageous for a fortune 500 company, but this was a CLEC startup in a middle tier market. Your quota every month was 60 lines. You got a bonus for hitting your goal, then each tier above that was additional commission.

Here's their tiered structure:

60 lines - $5,000

70 lines - $3,000

80 lines - $4,000

100 lines - $5,000

Let's say I land a nice commercial building with several tenets and the first month I land three companies all three of their contracts equal 70 lines. It would mean I get my $5K for hitting my quota and another $3K bonus for hitting the 70 line tier.

I thought this was awesome. Then after two months I suddenly realized something. I asked around to see what the margins were on the lines we were reselling.

On each line the company was making a pretty nice margin, around $20/per line. Now, you compare that with the commissions they were paying us. You do a little math and realize it's going to take them over 6 months just to break even on the commission they were paying versus what revenue they had coming in from our sales. More lines? More commission and longer wait times to realize a profit. Even though I was still in college, it was obvious to me this was not a smart business decision.

EDIT: CLEC stands for Competitive Local Exchange Carrier

The dot-com era was full of companies getting heavy funding with zero sales, zero product, zero track record and absolutely no real market evaluation.

Companies would literally spend days of meetings trying to figure out what colors to paint their huge offices and have massive catered lunches.

I worked at one company that had ZERO revenue and had secured $20 million in funding, and immediately hired 200 people. When the money ran out, they got another cash infusion of $40 million from a pending buy out, and when we were being told this by the CEO, I joked to a coworker that we would need to spend twice as fast this time to run out at the same speed...the very next thing that came out of the CEO's mouth was "so we're going to be doubling our staff right away". I found out later that we had TWO actual programmers in our company (I was one) and 10 "managers" for every actual "employee".

It was ludicrous. I think there are issues with today's 'VC' fueled market, but it's nothing like back in '99.

One could argue the Newton falls into that category, coming simply too early for pervasive (sometimes) high speed cellular data, where Palm/Handspring and RIM fared so well - even if transiently - later on.