The recent drop in stock prices was considered quite an Earthquake, but it wasn't the "big one" that will shake out the Internet and the economy.
The drop was caused by investors selling to pay taxes and by IPOs ending lock out periods (those months after an offering when insiders are forced to keep their money inside). It was made worse by speculators caught with margin calls. Even at its Monday morning lows, the Dow was up 10% from its 2000 low and the NASDAQ was higher than any level reached before 1999. In ClickZ I called it a "Winnie the Pooh Bear" market , in that there's still so much honey left in it.
Still, even a mini-crash leaves casualties, firms that wasted money when times were flush. Peapod was picked for a song on the brink of bankruptcy . MyPoints bought CyberGold and analysts didn't ask the basic question - whether either really has a sustainable business model . Headhunter bought Omnicom's Career Mosaic
The biggest casualty in the crash was the canard that combining second-rate assets will yield a first-class market leader. Both CMGI and Internet Capital Group fell hard. While headline writers talked most about the fall of the e-tailers the real story was how more speculative areas, like b2b and Linux, took the bigger hit.
The "flight to quality" which followed the fall favored "hard" tech assets like those of Applied Materials, Intel, Cisco and Oracle. The last move, and Microsoft's slow rebound, brought Larry Ellison's fortune closer to that of Bill Gates than it's been in years .
What are the Clues we get from all this?
What happens when the market crashes, even briefly, is that strong companies get the opportunity to buy out weaker ones. This creates a real advantage for start-ups. All market participants spend several months either absorbing or being absorbed, so they aren't be paying attention to the ground in front of them.
Another advantage for start-ups is the disillusion of many people who either sold options last year (leaving a huge tax liability new sales were needed to cover) or saw current options become worthless. The phrase "Confederate money" cuts both ways, so if you've got cash you can get talent without selling-out your equity. For the next few months at least, cash is king, and if you've still got some you've got great opportunities in front of you.
When the "real" crash comes, by the way, it will be much faster, much harder, and much more complete than this one. If we had a 1987-style crash we'd be looking at a Dow of about 6,000. In the case of a 1929-style crash (and Depression to follow) your lows after four years would take the Dow to 1,000. Seen in perspective, in other words, this was a blip.
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I write daily for ClickZ, and weekly at Andover.News. I write monthly for NetMarketing, Boardwatch, and Intellectual Capital. I've been in Advertising Age and the Chicago Tribune .Once every other month I'm in CLEC Magazine. You can always buy my book . Subscription instructions are at the bottom of each issue.
Remember that it's journalism that keeps the Clues coming...
Takes on the News
Computer Press vs. Conservative Press
The growing disconnect between law and computing can be illustrated simply by looking at a recent story on the Mattel-Cyber Patrol case in the APB News , a law enforcement news site.
I'm not going to argue with the story itself. I merely point out that the lead paragraph calls the program a "hack" that "reveals how to defeat a popular program used by parents to keep children away from violent or pornographic sites." (Sounds nasty, doesn't it?) The computer press, meanwhile, has uniformly reported the program as an attempt to reveal what's being blocked, which is the spin an ACLU lawyer gave further down the APB story.
If you look at the APB story next to a story on the same subject in News.Com they seem to be happening in parallel universes. That, and not which is right, is my point here. Those ideals seen by Netizens as liberty are seen by others as license. This is how we got the 1995 Communications Decency Act. You also need to understand that the Net's political hero, John McCain, voted for the CDA and would do so again in a heartbeat.
Shortcuts at WebMD
I have written before how medical Web sites, including WebMD, have yet to create a valid business model. Advertising won't cut it, gatekeepers prevent anyone outside the industry from making money in pharmaceuticals, and the same problems eventually destroy medical information sites. Every doctor is a gatekeeper for advice. That's their function. So the "consumer" business model for WebMD undermines the credibility of the b2b story they're telling doctors.
Gaining the Web's efficiencies means battling first through huge bureaucracies that want a piece of the action before letting you solve their problems, and then facing immense system integration challenges. Since WebMD and Healtheon both over-promised in order to put their array of businesses together, there's a huge temptation to take short cuts to bring in some revenue.
Here's one that's going to burn the company big-time . The San Jose Mercury News found that medical societies were re-selling doctors' home addresses and phone numbers through WebMD. Critics will rightfully ask that if WebMD is this cavalier with doctors' data, what will they do for patients' privacy? And if that's the case should anyone use it?
Public perceptions are meaningful. Chris Whittle's Channel One was seen as a failure due to political opposition. His Edison Schools have seen their growth slowed by political opposition. Think of Whittle as the Jeff Arnold of the education industry and you get the point.
No privately owned company can, by itself, demand the attention to operations that will motivate the medical industry to change itself. WebMD can provide carrots, but politics must provide the stick, before change will happen. That's the way it is with bureaucracies. So you have to keep your public image squeaky-clean.
The Story of Phil
Rob Frankel recently told his FrankelBiz list about his favorite marketing technology, a man named Phil.
Phil knows where the bodies are buried. Phil can get Rob through any business bureaucracy to the man he needs for a decision. He can do this because Phil is trusted by the "big guy," probably gave him his first job, and because when the "big guy" gets in trouble he calls Phil, too.
Phil is Rob's trusted advisor, and your business needs a good collection of Phils to succeed. There are money Phils, operation Phils, and management Phils as well as marketing Phils.
When you're an employee you need a "rabbi," someone within the hierarchy who will sponsor you, look out for you, and recommend you for the assignments that will help you rise. The way a business gets rabbis is to put people like Phil on a "board of advisors." It's a near-honorary position with no salary (but stock options make a nice gift). You call on these people when you need them, and they open their Rolodexes to you. They also talk you down from your day-to-day worries and keep you focused on the road ahead.
If you're experienced, meanwhile, you can become a Phil. I've taken on this role for a few businesses over the years and it's very gratifying. So your Clue is simple. If you want to grow, get a Phil. If you want to stay in the game, be a Phil.
Clued-in is Mary Jo Foley of ZDNet for pointing out that you can't both claim open source and not be open source . She wrote her story in the context of Microsoft, but it's also relevant to claims that there's a "legal" DVD player for Linux , making DeCSS irrelevant.
Clueless is Howard Fineman of Newsweek, for thinking high-tech will drive the 2000 campaign . This is the last TV campaign in the way that 1952 was the last radio campaign. You'll know it's an Internet campaign when candidates and issues boil up from below instead of being imposed on us from above.
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