What a difference a year makes. … Or then again, maybe not.
Last year at this time we were in the midst of one of the greatest new business booms of modern times. Start-up companies, most of them in Internet content delivery or e-commerce, were getting funded and bursting on the scene by the dozens per week. Their overheads were so low and their capitalization so high that they had the money to flood every media channel, from Super Bowl ads to driveable billboards, with their promotions.
The stock markets were setting new records daily, young people from all over the world were flooding into San Francisco as if it was 1849 redux, and everybody was a business genius.
We all know what happened next. Or do we? The high technology guru George Gilder and I have had a long-standing debate. He has always argued that victory goes to the innovators. I’ve always disagreed, arguing that the inventors are almost always overtaken by superior marketers.
The last year, I think, has shown us both to be wrong.
Solid Sites Reap Victory
Among the top surviving firms created in the last two years, none can really be characterized as pioneers. So much for Gilder’s argument. As for mine: We have just endured the biggest branding blitz of all time, … and the only thing we remember is the stupid sock puppet of a soon-to-be-dead company. So much for the triumph of marketing.
So who did win? The top e-commerce (not portal) traffic sites last week, according to Nielsen research, were in order: eBay, Amazon.com, American Greetings, CitySearch/TicketMaster, CDNow, Travelocity, Expedia, EToys, Electronic Arts (EA.com), Barnes&Noble.com, Egreetings, JC Penney.com and Walmart.com.
Toss out the greeting card companies as purely seasonal, and you have a pretty good list of the companies that are likely to emerge from this Christmas at the top of the pile. They are a very interesting mix that no one predicted a year ago: Internet-only newcomers, toy outlets, venerable retailers and a cost-cutting megastore chain.
What do they have in common? Nothing … except perhaps this: All devoted enormous energy and resources to building a community of users, and then cultivating the loyalty of that community through an extensive product line, good customer support and communications, and reliable delivery. In other words, each brought solid business practices to the Web.
Who would have thought that e-commerce success would go not to the outfits with the fastest burn-rates or the coolest offices or the flashiest sites, but to the companies, old and new, that offered a wide array of competitively priced products and delivered them on time.
Good business practices won in the end. How recherche!
E-Commerce Cooks Along
That’s one surprise. Here’s another: Despite all the bad news emanating from the dot-com world over the last few months, not all of the companies are doomed. As just noted, a sudden outbreak of good business practices might save a whole host of them now at the 11th hour. Here’s another piece of unexpected good news: a BizRate survey has found that online sales as of Nov. 20 were up 125 percent over last year — and the pace of growth appears to be accelerating by the week.
In other words, despite everything the dot-coms did to screw up the business, the e-commerce market is continuing to cook along, meeting all of the most optimistic predictions for explosive growth. And that, in turn, suggests that, despite all the bad news, the e-commerce boom isn’t over, but just begun.
It is, despite all of our irrational expectations, tracking along like a traditional tech boom market. Phase 1, Boom I, is over. Phase 2, the Shake-Out, is underway. And Phase 3, Consolidation, and Phase 4, Boom II, are waiting in the wings.
That means that the key tech stocks have probably now bottomed out and will slowly — perhaps very slowly — begin to climb back. It also means that some of the many sick dot-coms still have a chance of survival (though it wouldn’t hurt to have a warehouse full of Sony PlayStation 2s.)
One of my editors, a talented young man who was in the thick of the dot-com boom in San Francisco — and had his heart broken by its collapse — said dejectedly the other day, “You mean all of this was just to create a half-dozen new companies?” Yes. But those six companies are not only survivors, but pathbreakers for the thousands to come.
A Victimless Delcine?
Yet one more surprise: Where are the victims? Several thousand dot-commers have been laid-off in the last few months here in the Bay Area. Where are they? I don’t see goateed 24 year-olds dressed in black panhandling on Market Street. I don’t see nose-ringed young women with severe haircuts lined up at St. Anthony’s soup kitchen, or tearfully spending their meager savings on plane flights home.
On the contrary, that unemployed army has disappeared without a trace — no doubt temporarily diving into nice, safe corporate careers. The big economic and emotional crashes I predicted would arise from the punctured boom just haven’t appeared VCs are sitting on the biggest funds they’ve ever had — and for every dot-com they let die by withholding money, two new firms get investments.
A popping of the local real estate bubble? Housing prices are higher than ever. So are rents. A decline in the standard of living? A new Ferrari drove down my humble suburban street this afternoon. What about all those media stories of shattered Gen-Xers giving up on their dreams of entrepreneurship? Another recent survey finds one out of every four people in the Bay Area own stock options, one out of three in Silicon Valley. That compares to one of out 20 people in the rest of the United States.
All of this suggests that even though we have yet to hit bottom on this current downturn — and some of the worst may yet be to come — investors, companies and employees — are already positioning themselves for the next upturn. That too is a surprise, especially in a town not famous for long time horizons or perspective.
And so, all around us there is growing evidence that the high tech industry, especially the world of Internet-based business, will soon take flight again.
Yet, even as the optimism of a year ago far outpaced the reality of the marketplace, so too now it is hard to find anyone out there in the media or the general public who sees anything but a bleak future for e-commerce. And, for once, that is not a surprise.
Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail or through an ongoing bulletin board.