Burst
dotcom crash

The Social Web Will Help Protect Us From Another Dot-Com Fizzle

Next Story

Michael Dell May Lose Control Of PC Maker After Two Competing Buyout Bids Emerge

You’ve all heard stories about the infamous dot-com bubble burst of the early aughts. It wasn’t pretty, a lot of people lost a lot of money – and their livelihoods to boot. There will always be talk of whether we are close, or ever could get close, to a similar situation again.

I spent some time with an early employee of everything-you-can-think-of-on-demand-delivery-service Kozmo.com, Micah Baldwin of Graphicly, which was a poster child for early dot-com excess. The company raised $250 million before it shut its doors in 2001, since it had only become popular with college students and young professionals, they said. In 1999, its revenues were only $3.5 million, leaving the company with a net loss of $26.3 million. Ouch. This service was a lot like hot companies of today Postmates and TaskRabbit. The difference was that Kozmo didn’t have the social Internet, mobile devices or apps to spread the word about its free delivery service. Mind you, being a free delivery service makes zero sense, so no wonder why it flamed out.

Baldwin and I discussed an early commercial campaign that the company was super proud of, spending millions upon millions of dollars to produce and air. It starred an older version of the Million Dollar Man, Lee Majors. It got me to thinking, and this is exactly why Kozmo fizzled:

It was a cute commercial, but since it cost so much money to hire the agency to come up with the concept, cast it and air it, it was already an incredibly wasteful idea before it was complete. However, what was Kozmo to do? There was no Facebook, no Twitter and there certainly wasn’t YouTube for something like this to go (ick) “viral.” There were no Facebook pages to like, no accounts to follow and no apps to download. Kozmo had a few choices to get its name out there to the world, and all of them were expensive. This is why so many companies crashed and burned: There were no ways to do things cheaply. Failing and going back to the drawing board was impossible.

To hit yet another demographic, Kozmo paid to have a different commercial created, but this one never hit the airwaves:

Again, cute and not awful.

However, both of the commercials are something that companies are creating quickly and cheaply these days, passing them around to networks of millions of people thanks to Facebook, Twitter, Google searches and YouTube. I can’t imagine a company like Justin Kan’s Exec even discussing paying millions of dollars to come up with an advertising campaign for television, the idea is now that prehistoric and ludicrous. But that’s all companies like Pets.com and Kozmo.com had. Their ideas weren’t awful, but their operating costs, especially when it came to distribution, were astronomical. In 2013, a company like Kozmo comes out of Y Combinator every batch and raises nothing more than a $250K seed round to see if it has what it takes to succeed. If it doesn’t, then the smallish teams usually scrap the product and build something else, using their learnings from the previous letdown.

While Facebook might not have hit the sweet spot for offering advertising options to brands yet, it’s light years ahead of what used to be available. More startups are being formed because there are simply fewer hurdles for distribution thanks to these social platforms. It means that there are way more companies and ideas to weed through to find the gems, but it means that no real financial or industrial damage can be done. Facebook has been around for nine years and Twitter just celebrated its seventh birthday and Apple’s App Store is almost five. These are good things that will get in the way of another crash. Fewer companies going public will help that, too.

We’ll never hear about another Boo.com, a company that spent $188 million in six months to sell fashionable clothing online or a Freeinternet.com that cancelled an IPO after generating only $1 million in yearly revenues. There are just too many metrics and social signals on the web these days, in real-time, to find out if a company is successful enough to warrant funding anywhere close to what the aforementioned companies raised.

Having said all of that, what if Kozmo had YouTube? That Lee Majors video would have blown up on Twitter, and who knows…maybe it wouldn’t have gone out of business. Okay, it probably still would have, because “free” anything is never a good idea when it actually costs a company something. The web has grown up around businesses, for a reason, to protect entrepreneurs from raising stupid money to do stupid things with it.

We’re safe for now, but Twitter and Facebook won’t cut it for social distribution forever. That means that there is plenty of room for moonshot thinkers to come in and build a service that can get the attention of hundreds of millions of users, something different, something fresh, something that smaller companies can leverage to build up their own businesses. That ongoing distribution channel evolution is important to protecting our industry from a crash ten years from now, and that’s what excites me about technology.