I remember a discussion I had with my father several months ago about the enormous rash of Internet investment (which, in retrospect, made Tulip Mania look like a Saturday swap meet). He explained to me that the investors weren’t necessarily looking for a profit. Rather, they were “building the infrastructure” for e-commerce, and once this infrastructure was in place, it would be viable for business. Which meant the investors could then actually make money off the Internet. Or something.
Okay, the train has come, gone, and slammed headlong into a mountain…I’d say a little progress report is in order. Do we have this infrastructure? Are the mechanisms now in place for Internet companies to have as much of a chance as their brick-and-mortar cousins? Or have we been duped again?
On a related note, throwing tons of money at fly-by-night Internet companies (many of which were nothing but money siphons from beginning to end) seems to me like an incredibly inefficient way to build this infrastructure. Wouldn’t it make more sense to donate the money to a nonprofit technological institution? Not only does all the money go to vital research and development, the investors also get a big tax break in the bargain.
I think that many companies are still in the thick of things, especially if you look outside the US. Many companies here in Vancouver that benfitted from the dot-com expansion are still working away. The major reason, IMHO, is the fact that foreign countries didn’t have the capital being thrown around so willy-nilly that the US did. As a result, all these foreign companies (and many US companies) actually provided a real, tangible product or service that was simply facilitated or distributed via ‘the internet’. So when the bottom fell out of the high-tech industry, these companies still had a product or service that people still wanted. They were not dot-coms created for the profit of VC’s, but rather to do business.
Of course many companies that had a sound business plan went under, but that happens in all industries.
To get back to the point, yes, the infrastructure is in place. I can shop, invest, publish, etc, etc… on the internet today with the greatest of ease, thanks in large part to the boom of the last couple years.
But having the capacity to compete with brick-and-mortar companies doesn’t mean that it will happen over night, or at all.
I think that your father is overestimating the rationality of investors. Most of them saw internet stocks going up and felt that they needed to invest or else they would lose out. But there was never any reason to believe that pets.com would find a way to make a profit. Everybody just hoped that if they bought and sold at the right times, they would make a few bucks at somebody else’s expense.
To answer your main question, I think that “infrastructure” is just a buzzword, at least in this situation. Yes, there were some improvements in the hardware and software that internet companies used during the boom, but that does nothing to fix the fact that most of these companies never had business plans that would lead to profits.
Just for the record, he has a number of sound investments, including a growth fund, so he’s far from ignorant about investing. Nonetheless, I think he got the big about “infrastructure” from a news program, and lord knows they’re not 100% reliable. I’m pretty sure more than one VC used that as an excuse, but come to think of it, it may have been just spin control.
It’s not a good argument, at any rate. Nearly all the dotcom failures relied on exisiting technology…that’s what made the boom possible. Only a handful were in the business of creating new technology, and, as I’ve already mentioned, many were nothing but money-draining scams. (Got most of this from http://www.fuckedcompany.com, BTW. Good site if you don’t mind a lot of harsh language, which the URL may have tipped you off to.)
Kylen - So our loss is your gain, eh? Well, in this case, maybe that’s a good thing. (Let’s all be a little more careful next time, boys and girls! :))