18 November 2005

Battelle in NYT: Building a Better Bubble

Check out John's op-ed in the NY Times. I sure hope he's right! To this line, however, I want to add some thoughts:

"Recall that the demise of Web 1.0 was predicated in large part on the collapse of the Internet advertising business -- people were spending millions buying billboard-like ads that, it turns out, nobody was paying attention to."

The enormous flood of venture capital into early-stage start-ups certainly led to some stupid ad spending. Oh my, was there stupid ad spending! In 1999 I was at mySimon, a shopping search engine site. We sought to raise $13 million to invest in our technology and to expand our product and sales teams. I kid you not: the VCs wouldn't give us $13 million -- we had to take $25 million, because, they told us, we needed marketing dollars to launch ourselves as a consumer brand. (I would argue that in mySimon's case, our investors were right. But that's a longer discussion.)

The point is, there was too much money being spent too fast, and it led to tremenous waste. Some of those investment dollars and ad budgets enabled the launch of indisputably hare-brained business ideas. Others, some with good business plans, spent money unwisely because they felt the urgency of the mythic "first mover advantage." Others got suckered into round-trip AOL "investment" deals, which pumped the ad marketplace with dollars Eliot Spitzer might call, um, illegal.

When the wasteful spending didn't return revenues or profits quickly enough, investors stopped funding the ad-spending circus. I'd argue that the collapse of internet advertising in 2000-2002 had more to do with investors sobering up, and less to do with whether or not website visitors were paying attention.


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