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See Full StoryDespite all the bluster and hype spewed by entrepreneurs and venture capitalists in the late 1990s, they could not create what they so desperately desired -- a New Economy that would replace the business cycle of expansions and contractions with constant growth. Instead, many e-tailers fell by the wayside, and current economic conditions reflect the very definition of the word "contraction." According to Mukul Krishna, senior industry analyst at Frost & Sullivan, "New Economy" is just another buzzword. Or is it?
I’ve studied the Dot.Com crash and I don't accept the theory that the crash was primarily caused by "new economy entrepreneurs" or by the pure-play sector's so-called "flawed business models."
First off, all of the public records I've checked, including hundreds of SEC reports, show that well over 80% of the Net's failed pure-plays were managed by bright, well-educated and reasonably seasoned CEOs, not by a bunch of reckless entrepreneurs. Second, the business models that were used by most pure-plays weren't "flawed," as most analysts say, but were actually adaptations of the exact same tried-and-proven business models that millions of conventional brick-and-mortar businesses have used for years.
So what really did cause the crash? While nearly everybody agrees that the pure-plays were largely wiped out by their extremely high customer acquisition costs (CAC), the Net's analysts and pure-plays, however, have always held widely different views as to what factors actually did cause the sector's CAC to soar so high.
Although most analysts still claim that the pure-plays' unusually high CACs were caused by the sector's so-called "reckless business practices," several new research studies show that the sector's poor CAC performance was likely caused by other factors, including the public's concerns about the security aspects of Internet shopping. Based on the results of these studies, it's become more evident that the public's mistrust of the online shopping process inflated the pure-plays' CACs far more than anybody ever suspected.
A study conducted last year by UCLA, for example, shows that while millions of people shop worry-free online everyday, millions more, some 60% to 80% of all Internet users, still harbor concerns about online security issues. These security conscious users may use the Net to "window shop," but they rarely buy anything from any of the Net's online retailers. Other research studies, moreover, also show that "active online shoppers," those Internet users who do buy goods and services online, are far more likely to buy from the Net's brick-and-clicks than from the pure-plays.
I'm certainly not the smartest guy in the world, but you don't have to be too smart to figure out what really did cause the crash. Randomly select any 10 pure-plays, chart their monthly CAC performance over a few years, and you'll see that their CACs zoomed straight up in mid-1998, exactly when the media started releasing a slew of news reports about online credit card fraud and hacker attacks. A coincidence? Most analysts may claim it was, but analysts typically dismiss facts that contradict their own theories.
Maybe the Net's analysts have convinced journalists like Bob Woods that their Dot.Com crash theories are right, but they haven't convinced me.
Jim Pflaum
First off, all of the public records I've checked, including hundreds of SEC reports, show that well over 80% of the Net's failed pure-plays were managed by bright, well-educated and reasonably seasoned CEOs, not by a bunch of reckless entrepreneurs. Second, the business models that were used by most pure-plays weren't "flawed," as most analysts say, but were actually adaptations of the exact same tried-and-proven business models that millions of conventional brick-and-mortar businesses have used for years.
So what really did cause the crash? While nearly everybody agrees that the pure-plays were largely wiped out by their extremely high customer acquisition costs (CAC), the Net's analysts and pure-plays, however, have always held widely different views as to what factors actually did cause the sector's CAC to soar so high.
Although most analysts still claim that the pure-plays' unusually high CACs were caused by the sector's so-called "reckless business practices," several new research studies show that the sector's poor CAC performance was likely caused by other factors, including the public's concerns about the security aspects of Internet shopping. Based on the results of these studies, it's become more evident that the public's mistrust of the online shopping process inflated the pure-plays' CACs far more than anybody ever suspected.
A study conducted last year by UCLA, for example, shows that while millions of people shop worry-free online everyday, millions more, some 60% to 80% of all Internet users, still harbor concerns about online security issues. These security conscious users may use the Net to "window shop," but they rarely buy anything from any of the Net's online retailers. Other research studies, moreover, also show that "active online shoppers," those Internet users who do buy goods and services online, are far more likely to buy from the Net's brick-and-clicks than from the pure-plays.
I'm certainly not the smartest guy in the world, but you don't have to be too smart to figure out what really did cause the crash. Randomly select any 10 pure-plays, chart their monthly CAC performance over a few years, and you'll see that their CACs zoomed straight up in mid-1998, exactly when the media started releasing a slew of news reports about online credit card fraud and hacker attacks. A coincidence? Most analysts may claim it was, but analysts typically dismiss facts that contradict their own theories.
Maybe the Net's analysts have convinced journalists like Bob Woods that their Dot.Com crash theories are right, but they haven't convinced me.
Jim Pflaum
Re: The Myth of the New Economy
Posted by: Sandeep Sangli 2003-02-07 04:28:41 In reply to: Bob Woods
The views expressed in the article are being endorsed by people now, which is after the damage has been done. But still the experience can be valuable and will deter people from hooking on to "revolutionary ideas" and force them to put any new idea under the microscope before implementation, which is always necessary for a solid foundation.
The move to a new economy is still happening, however at a slower, steady pace. Look at the travel industry for example and at ecommerce. It is happening, so just because many of the winners are brick-and-mortar players does not mean that the way we do business is not changing. Wireless will help as well as broadband in getting people more interested.
aloha tcarr,
i enjoy reading your feedback on the article, and i agree with you 100% that the way we do business is changing because of the internet.....the airlines save "1 BILLION DOLLARS" a year utilizing the internet and cutting labor (ex. continental)!!!! i have a question for you!!!!! HOW WOULD YOU LIKE TO PUT A TOLL-BOOTH IN FRONT OF ALL THAT COMMERCE THAT E-COMMERCE WILL GENARATED???
i'll give you an example..... bill gates put a toll-booth on the hardware of computer systems...no matter if it was compaq, apple, mac, etc..whoever....going by..... they had to use windows software for an operating system......to make a long story short 98% OF ALL SOFTWARE TODAY IN ANY MAJOR P.C. IS MICROSOFT WINDOWS!!!! HELLO!!!! THAT'S A TOLL-BOOTH..... NO MATTER WHO IS GOING BY HE GETS A SLICE....RESIDUAL INCOME....
THERE IS OTHER MICROSOFT BEING BUILD ON THE WEB RIGHT NOW!!!!
mahalo,
fennerm@wwdb.com
i enjoy reading your feedback on the article, and i agree with you 100% that the way we do business is changing because of the internet.....the airlines save "1 BILLION DOLLARS" a year utilizing the internet and cutting labor (ex. continental)!!!! i have a question for you!!!!! HOW WOULD YOU LIKE TO PUT A TOLL-BOOTH IN FRONT OF ALL THAT COMMERCE THAT E-COMMERCE WILL GENARATED???
i'll give you an example..... bill gates put a toll-booth on the hardware of computer systems...no matter if it was compaq, apple, mac, etc..whoever....going by..... they had to use windows software for an operating system......to make a long story short 98% OF ALL SOFTWARE TODAY IN ANY MAJOR P.C. IS MICROSOFT WINDOWS!!!! HELLO!!!! THAT'S A TOLL-BOOTH..... NO MATTER WHO IS GOING BY HE GETS A SLICE....RESIDUAL INCOME....
THERE IS OTHER MICROSOFT BEING BUILD ON THE WEB RIGHT NOW!!!!
mahalo,
fennerm@wwdb.com
If you read J.K. Galbraith's "The Great Crash of '29" today, you will find a great many parallels between the late '20s and the late '90s, not the least of which being the idea that the laws of economics have been repealed and that a new age of permanent prosperity has arrived.
