Is the downturn over?

July 5, 2001 8:18 AM

Is the downturn over? Looks like the dotcom downturn is levelling. Have most of the bad ideas seem to have shaken out of the market?
posted by TNLNYC (23 comments total)

A plateau doesn't mean it's over, just that it's no longer accelerating. We've just reached the hump -- we still have to roll down the other side before it'll be over.
posted by tweebiscuit at 8:33 AM on July 5, 2001

It does appear that the blow has been taken, and those companies who can't make it have dissolved or merged. I have heard a few antedotes of people being hired by dot coms again (albiet for low salaries compared to the heydays)
posted by brucec at 8:40 AM on July 5, 2001

just because the first derivative is zero doesn't mean you've reached bottom. May just be a pause before the next plunge.
posted by jfuller at 8:43 AM on July 5, 2001

Earth to MeFi...Earth to MeFi: The Internet is not the economy. That is, dot com companies do not predict the state of a market. Also, dot com companies are not a market. The market a company is in is determined by the goods and services offered by that company, right?
And besides, the pundits couldn't predict the down-turn, what makes you think they can predict the up-turn?
posted by bradlauster at 8:55 AM on July 5, 2001

Oh, contraire, bradlauster! The dotcoms ARE the economy. The grand mistake is treating "the Internet" like an industry, or a business model. It's just another communication medium. An exciting one, sure, a new one, absolutely, but one that derives the vast bulk of its value from enhancing existing businesses. The Internet touches virtually all parts of the economy. You can no more analyze it in a vacuum than you could phone systems, or electricity.

Re the timing of this downturn, just watch the Federal Reserve. They know more about what's going on in the economy than anyone. When they stop cutting interest rates, or even ratchet them UP a notch, the "downturn" will officially be over.
posted by JParker at 9:41 AM on July 5, 2001

Technically, if it is a plateau then there is a short spike upwards, a longer flat level and a short
spike downwards.
..-----------------
/........................

Therefore we are going to go along way -- maybe twenty years -- at this flatline level -- where there is no particualr excitement about Internet companies, but there still is the potential to make money, until there's a drop, and at that point, the drop will be caused by declining interest in the Internet (maybe because something else will be invented then)
posted by brucec at 10:07 AM on July 5, 2001

That's a good point, JParker. Not being an economist, my only slightly educated opinion remains: performance of dot com companies is not a predictor of performance for the entire economy. This is because not all dot com companies are Internet companies.

Anyone know the percentage of dot coms that are Internet companies? (example: KnowNow = dot com Internet company; JustBalls = dot com, but not Internet company)
posted by bradlauster at 10:11 AM on July 5, 2001

JParker is partly correct. Information Technology has driven the economy. Investments in technology (not just dot coms) have increased monetary circulation and added value to many goods and services. The downturn, a slowdown in this spending, caused other businesses to slow down as well. bradlauster is correct in that the "dot coms" are just a small percentage of the overall economy and not "the economy".

The Information Technology sector was the driving force in the overall economy. Will it be again? Will it be something else? Or will the economy receed or stagnate? These are the unknowns.
posted by borgle at 10:11 AM on July 5, 2001

I used to work for a really great company called methodfive. In the "boom" a year and a half ago, the CEO sold out to a company called xceed (making Adeo Ressi a paper gazillionaire). Up until that point, they were doing really well.

Its difficult to say, but in that incarnation, I think they could have survived fairly well. They had good contracts, good potential business, and a core workforce that went on to form this.
[beware, flash abounds]

Unfortunately, xceed expanded at a ludicrous rate and collapsed in May this year. For me, its the best example of the stupidity that abounded at this time. If they hadn't been bought by a company whose history involved water based broken-leg cast technology, they would be at the forefront of the dot com survival and would be talked about here on MeFi today.
posted by davehat at 10:32 AM on July 5, 2001

davehat - As another xceed victim, I would have to say executive ineptitude played at least as much in their collapse as rapid growth. Of course, as an ex-employee of the only office xceed tried to grow organically, I may be biased. (I never thought they would outlast another one of my former companies though... USWeb.) I think that, in a nutshell, these two facts, trying to grow too fast and inexperience, together explain a lot of the "crash" in dotcoms. More silly companies went under than potentially good companies.
posted by trox at 10:42 AM on July 5, 2001

The dotcom I was at went through a change from B2C to B2B and actually had a good product (ad insertion for streaming video) but couldn't sell it. Which sucked, cause so many other companies had no product, here we were with an actual product and suffered the same fate...
posted by owillis at 10:44 AM on July 5, 2001

bradlauster, where on earth did you get the idea that the original post was intended as an analysis of the entire economy, and not just the sector that matters most to many Metafiltrians? The provided link certainly offered no such suggestion, either. Nor is it punditry. So when you're on a train, where do you get off ...
posted by dhartung at 10:58 AM on July 5, 2001

Trox: I got fired for telling them their UK expansion was fatally flawed.

I got one hell of a pay off. I had a great 7 months in Africa as a result. Thats the only reason I can still talk about them without spitting bile.

What company were you before xceed bought you?
posted by davehat at 11:04 AM on July 5, 2001

Ah owillis, the switch from B2C to B2B, one of the advanced warning signs of dot com first aid.
posted by mathowie at 11:08 AM on July 5, 2001

one of those bad ideas shaken out of the internet economy must have been hiring entry level people. that's how it looks on my end of things.
posted by moz at 11:18 AM on July 5, 2001

moz: Never a truer word said.
posted by davehat at 11:32 AM on July 5, 2001

davehat - actually, I wasn't with of the companies they bought. I was hired to help build an office for them from the ground up (former USWeb folks, legacy Mercury7 folks, Think folks etc.). They said the right things at the time, but then the support from corporate just never materialized ,and we were left out to dry in a very hostile and different market than most of the company was used to (a market they didn't try to understand). As for the UK expansion, I said the same thing to myself when it was happening. As for getting the ax, heck, I had 3+ great years, so I can't complain too much.
posted by trox at 11:34 AM on July 5, 2001

Trox: I got fired for telling them their UK expansion was fatally flawed.

It's deeply satisfying when one of your lines gets proved true...
posted by holgate at 11:44 AM on July 5, 2001

The "old economy" investment tycoon, Warren Buffett, once explained that he didn't buy the dot com economy because the internet was like the airline industry -- great service to humanity; lousy return for investers. Interesting words, but I don't know how true it will be...
posted by tallman at 11:59 AM on July 5, 2001

Well, if you graph the NASDAQ against Berkshire Hathaway over the past five years, you'll see an interesting mirror image.
posted by holgate at 2:57 PM on July 5, 2001

Just because the number of dotcoms going under might be decreasing, that's not to say that the percentage of existing dotcoms going under isn't increasing...

Let's face it... there are only a few options for many dotcoms:

1> Sell out quick. Find someone to buy your business before it becomes a f*ckedcompany. Most companies that would be interested in a revenue losing dotcom, however, aren't interested for buying things at a premium right now. They'd rather wait for fire sales...

2> Get more money. The problem here is that banks won't loan it to most of these companies, regardless of the low interest rates, and VC companies only want to give it to you if you can show a clear path to serious profitability in a reasonable amount of time... that leaves most dotcoms screwed.

3> Achieve profitability, ASAP. This, for those dotcoms that can do it, entails real pain. Cut staff, cut benefits, close offices, curtail wild expansion... and pray that business picks up.

As for me, I don't expect any changes to this fundamental problem anytime too soon. What will turn things around in this industry aren't the rate cuts... again, banks aren't in the business of throwing good money after bad. What will change things is when there is far more VC supply than demand, and a clear indication that spending money on battered yet recovering dotcoms is a good idea as opposed to other investments.

Dotcoms are as poorly equiped and as badly overextended as Napoleon's army was in Russia. He invaded with a half a million men only to find that the enemy had retreated, victory was elusive, scorched earth was left in his wake, and enemies were nipping at his heels... and then, when the whole invasion was already looking pretty pointless, it started snowing. A slow, difficult retreat became a bloody rout and only 10,000 men made it back to France.

Good luck, all you dotcoms out there. Dress warm and keep your boots dry, because you're going to need all the help you can get...
posted by markkraft at 4:39 PM on July 5, 2001

I think today's market recap from CBS MarketWatch pretty well answers the question asked in the original post:

"After a brief lull, layoffs rose again last month, an outplacement firm said Thursday. Meanwhile, first-time claims for jobless benefits rose for the first time in four weeks last week, the government said."
posted by JParker at 4:50 PM on July 5, 2001

HotJobs was recently bought by Monster, which may or may not mean something.

I'm also curious whether anyone has any stats regarding consumer broadband subscriptions. Frankly, little or nothing I use the Web for needs more than my 56K modem, but I would be curious how subscriptions have evolved over the last two years.
posted by ParisParamus at 5:10 PM on July 5, 2001