7 Lessons Learned From The Dot-com Fallout
April 17, 2001 5:51 PM   Subscribe

7 Lessons Learned From The Dot-com Fallout -- "Some of these are so obvious it's almost too embarrassing to list them." Indeed.
posted by shauna (8 comments total)
Sounds like she was confused as well. She has more writings here and here.
posted by Hankins at 7:07 PM on April 17, 2001

Well, I feel better that someone else didn't understand what marchFirst did.

On the other hand, I read it twice, and with that Twilight Zone thing, I have no idea what she's talking about.... ???
posted by ParisParamus at 7:31 PM on April 17, 2001

She certainly likes the the <ol> and <ul>, doesn't she?
posted by fooljay at 8:16 PM on April 17, 2001

what about:

No revenue does not equal IPO-ready.
posted by o2b at 9:03 PM on April 17, 2001

An attempt to explain the Twilight Zone thing: Paris, possibly what throws you is this - the button box which promises riches and an uncertain death is not a business model. So why is Gutzman comparing the "free now pay later" business model to something that isn't?

[It is my not so humble opinion that...] The point she's making is that "free now pay later" is just as absurd as the Twilight Zone episode in question. "Free is an unsustainable business model." On paper it looks feasible, but like any Get Rich Quick scheme involving Multi-Level Marketing or otherwise too good to be true concepts, it just doesn't hold water. Then again, like Skallas suggests, the article in question doesn't hold water either.

Come to think of it, neither does this diatribe but that hasn't stopped me from rambling before. In an attempt to compare the two, eventually someone's not gonna push that button. That's when the cycle ends. So investing in such a business model is inevitably going to fail. Gutzman's article is an entertaining read, but is filled with 20/20 hindsight, armchair quarterbackism, and toldyousoishness, and to quote from Douglas Adams, nobody likes a smartass. As I said, the business model mentioned in the Twilight Zone episode isn't even a business model. Beyond just being an entertaining half hour television show, it sucks. The premise barely even survived one episode. You couldn't make an entire series about it.* BTW anyone else ever seen that Twilight Zone episode? It's got a good beginning and end but the middle just gets stretched to the breaking point. Not one of Serling's better works. Why? Weak premise, which further reinforces Gutzman's original point.

The idea behind the Twilight Zone episode was that human nature is inherently evil; i.e.: prone to the Seven Deadly Sins - particularly avarice. So long as that assumption is true, the box being passed around with a button that offers immediate financial reward with an uncertain future in the short-term will work. As soon as someone proves that assumption false, the "business model" will fold like a house of cards. The "free now pay later" business model is similar. It works on human greed. Offer something new and/or improved and offer it for free, the greedy world will beat a path to your door. Get them addicted to it for free and when you start charging they will not be able to argue.

This does work on rare occasion, but not to the longterm benefit of the consumer or the supplier. This is how the business model for illegal drugs operates. Offer it free to newbies, get'm hooked, then start charging them. However, the product or service has to become addictive to the customer in order for this to work, and you have to be the only supply source, or the consumer will go somewhere else. Napster is sort of learning this the hard way. People love music. They love free. Offer music for free and they'll keep coming back. Be forced by legalities to charge, and the demand for free music you've generated will simply move elsewhere for their "fix" or they'll eventually just go without if it becomes too difficult to get. In the case of Napster, the "free now pay later" concept backfired, partly because that wasn't the original plan. Shawn Fanning was just trying to simplify something that was already going on in IRC. He did his job too well and decided to attempt to make money as an afterthought (without thinking it through).

The same is true for most of the dotcoms that have either folded or found themselves in hot water within the past 18 months. They oftentimes grew out of a neato idea which wasn't well-thought out, but was interesting enough to keep someone's attention for about the same amount of time as the average Twilight Zone episode. Or rather, long enough to convince some moneybags to pull out their checkbooks and take a risk. However, putting money into something being offered for free is like paying employees to sit around and do nothing.

To further compare the unlikely "business model" with the free thing. In saying the use of free as a business model in and of itself reminds Alexis Gutzman of that particular Twilight Zone episode, she's pointing out that though it sounds good on the surface, giving anything away for free which deserves a pricetag is in the long term: 1) harming the companies directly or indirectly responsible for that good or service. 2) is misleading the public to a false sense of security, knowing that eventually you're gonna rip the rug out from under them when you "go pay," 3) and is an insult to commerce and the macro-economic system as a whole, which is most noticably apparent in how internet stocks caused NASDEC to become so chaotic, and almost caused a full-scale depression recently.

When Bill Gates looked at Netscape's free for now but we'll charge for the final version later web browser and said, "I can offer something just as good for free indefinitely," he inadvertently proved just how much like a house of cards the entire concept is. There are times when it can work. Sort of. Id software is a firm that managed to make this work, but it was by separating their goods. Castle Wolvenstein was free (or rather shareware), but later products were pay, and they used the 'free' model at a time when the word still turned people's heads, turning to more conventional "off the shelf" forms of merchandising after making a name for themselves. I don't know about any of you but nowadays when I see the word "free" I turn the opposite direction. I've been burned by that proverbial "box with the big button on it" too many times. I'll just live my life without the alleged advantage of something too good to be true.

* But then again they did do "Suddenly Susan with Brooke Shields, didn't they? If they can do that, they can probably do anything. It'll suck, but they can do it.
posted by ZachsMind at 10:24 PM on April 17, 2001

Well, most of her items seem fairly obvious, but here's an interesting tidbit:

"Even if the Internet disappeared tomorrow, we'd still have XML."

I suppose we would, but XML loses a lot of its value (the reason businesses would even consider adopting it) without a global data network.
posted by daveadams at 8:59 AM on April 18, 2001

Free is a business model, viz. radio, television, alternative newspapers. Problem was the pricing on the ads, and unrealistic expectations about ad volume growth based upon ads being bought with Internet venture capital.

A free content site (a) edited and promoted to attract coherent eyeballs and (b) managed penuriously such that costs are less than the operating-budget-bought ads (i.e., ads not part of a company's venture-funded capital growth budget), can do fine.

Drudge, Aint-it-Cool-News, etc., are examples of that.
posted by MattD at 10:44 AM on April 18, 2001

I'd call Drudge and AICN addicting. I know I gotta get my fix of AICN now and then. So they work the 'free now pay later' business model similar to drug pushers. *smirk*

Fortunately advertisers are still buying my fix for me there, but honestly I doubt Harry Knowles is rolling in the dough. Maybe he made a lot at one point. He might even be breaking even or getting a tidy profit but I somehow doubt it. He does it because he loves it. He gets paid via attention, kudos, and fringe benefits, which are by the way affecting his judgement and making him not as hot a commodity as he once was. Don't git me wrong, I like the guy but he's not a respectable critic. Fortunately he's never openly claimed to be objective. He just wanted to have fun and has had a greater ride than most.

I imagine Matt Druge does it cuz he loves it too, and doubt very much he has his own Lear jet. If you can call "free now pay later" a business model, it's not a very good one.
posted by ZachsMind at 12:10 PM on April 18, 2001

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