The Paper!

Paper is below.  trust me, you want it this way.  If you feel like the thesis is weak, so do I.  I also know that I went way over the 5 page limit double spaced…

When asking about “How do you value a company?” circa 1997, most major investors would be worried about the internet.   They felt it was some sort of lifechanging power about information and its movement, and they heavily invested in companies that   They felt it was a major change in how they did business.  They ran up stocks of technology through trading in their 401ks and playing daytrader, or investing in heavily technology stacked mutual funds. Their state pensions and donations to community institutions were stuffing the gills of Venture Capital Funds looking for returns during the runup and the explosion of early internet growth.  During this time, we were labeled manic, “irrationally exuberant” by Alan Grrenspan.  Defenders of the internet boom and its runup, although admitting a need for a correction, defend the basic business model of “eyeballs on a page,” especially if the fundamental idea underneath seemed like it could dominate a market.  In reality, part of the market’s conception of how to value a company did change with the advent of the dotcom boom and bust; by the end it became clear that services would come to dominate the future.  It also became very unclear how to measure the value of a service, a problem that remains to this day.  However, market fundamentals still remained: value had to be proved and provide, and the companies that survived did so.

The internet fulfilled parts of Dr. Vannevar Bush’s 1945 promise from “As We May Think” that information would become ubiquitious and flow easily from person to person.  His article on the Memex placed the idea of information programs in a machine that everyone could built on instead of what actually happened[1]: the rise hypertext transfer protocol (HTTP) and transmition control protocol/internet protocol (TCP/IP), which decentralized However, this first modern incarnation of the internet, the HTML/HTTP protocols pioneered by Berners-Lee at CERN in Geneva, never made clear what this space is or should be used for, especially post “deregulation” from the NSF and placed in the private sphere.  If any kind of information, in theory, could be transmitted, and no one is very clear about its location, hwo does one measure it, and what does it mean, when one sits in front of a computer that one is interacting with it?

One of the more interesting problems about looking at a dotcom company that has filtered into today’s economy is that it is very hard to locate value in something that appears to have no physical presence, yet one interacts with it.  Computers, in the broadest sense of that term, are physical objects: the programs that run on them are not.   We create a mediated physical space when we interact with a program on computer. We think the program is on our computer, and that it will do certain activities for us when we act with our computer.  Those actions are in reality only ideas: actual action on a computer is in some ways very minimal.  In the transition from the 1980s, and early 1990s, onto today, the creation of the browser meant one had to worry about where you computer was located in relation to other computers, because one stopped interacting purely with programs on ones’ own computer.  Instead, one was drawing upon programs from a decentralized source in the unknown, where behind that unknown is most likely another human who is acting much like you.   As a result, I have yet to find reasons for websites like the one for Whole Foods, beyond as a very complex advertisement, since it isn’t made clear who I am interacting with in that space.  To me, Whole Foods is a supermarket that I go to and buy tomatoes from.  The website seems disjointed from this experience.  Good internet experiences should not do this, they need to add value, completely through the mediation, which is a service to the person.  To this day, it is extremely difficult to measure the value of a service: it becomes all the more so when a business owner has to worry about the fact that s/he has decreased the amount of human contact to reinforce that it is a service business.

Mary Meeker came up with this idea, that one needs a sound business model, but one should get big fast and be very concerned about who is looking at your website.  If one has lots of people looking, one has lots of information being transmitted, and eventually one would gain dominance in the market. [2] This is not very helpful though, because it doesn’t clearly state why someone looking at your webpage helps you.  If they are not interacting in your web-space, nor are the mechanisms of your business model behind your web-space efficient, then what is your page-viewer doing there?  Figuring out what is efficient when it comes to the internet became a complex issue.  Even ideas that seem to be efficient, may end up not being so in real life, especially if one does not generate enough pageviews.

This paradigm problem is seen very clearly a number of times in our course material.  The business model behind GovWorks, the company featured in Startup.Com, should have been an efficient Internet company, from the perspective of an internet user.  Much like EBay, a perfect paradigm of a good internet company because they do no physical transactions in goods, GovWorks should do very little to no physical item handling.  They are just a front piece of decentralized software for paying parking tickets for many governments in the United States. They should be able to cause seamless interaction of information between governments and people who have parking tickets.  They should have been able to make money as a commission service from governments.  However, because the marketplace was very competitive, because their software apparently was buggy, and because internet speeds were slow (I remember a 56kbod modem being fast), they end up being sold at a loss. [3]

At the time they were created, they were not bootstrapping, they were running for money from venture firm to firm, in a period of increased valuations on these companies- no matter whether or not there was competition or if the idea was any good.  When they took the money and the valuation they had, they took on an obligation towards an exit so that the fund could make money on the stock either through a buyout or through the public markets.  When it turned out that no one wanted to bother with GovWorks, because they couldn’t answer their marketing scheme as a service provider of information efficiency, which was what they technically were, they went under and were sold at a loss to First Data Systems, which specializes in providing these sorts of services.

One clearly sees this issue of orthogonigal relationships between lack of real space for someone to relate to, but a need to behave in.  This is clearly seen in Netscape business plans: The software product that they were offering was in fact free to nearly everyone, the value add was the fact that most users of Netscape were directed to a frontpage upon opening the browser that Netscape directly controlled the content of.  In theory, because Netscape had ownership of this web-space, they had ownership over the first thought that people would think, and that Netscape could then drirect them to that thought.

In the New, New Thing, Jim Clark goes Marc Andreesen and sits downs and explains to them that they can’t charge ninety-nine dollars for the browser.  It would inhibit widespread adoption of a product that would only be understood and liked if it was tried out kept.  Income had to come from some other place.  As a result, almost no one had to pay a licensing fee.  They had to rely on becoming a media company, a very service oriented type of company in order to pay for the development of the browser.

Jim Clark took this a step further with the development of Healthelon/WebMD: The website was a service by being a frontpage to insurance companies, doctors, and providing a source for consumers to check information about their diseases.  In the end, it was a large media company about diseases for a variety of different types of people.  Even though it ended up surviving the bust because it provided a service, accessible medical information to wide variety of doctors simultaneously, it’s value became overhyped through the mere presence of its newness.  Today it still exists as a company, though it does not trade nearly at the heights it traded at before. This dynamic of media provider versus service had never existed before: It is hard to understand why something is valuable if it pure information.  One of the early ways to find out was to provide hype.

Indeed, much like the early presence of Railroads, before it became clear what was the value add of a railroad, misunderstanding that websites make information seamlessly accessible and then propagated that seamlessness made understanding the business model difficult.  TheStreet.com, had it taken a slower path to growth, probably would have been fine.  It had a pay service: It drove itself to eat up its revenues through gathering media attention, and lost significant ground when .  It ate too much of its own hype, because it was able to quickly propagate whatever it said to itself.  It drove investors who frequented it, and other media figures who picked up on its writings, to feed on what it said even more, which fed back into the hype machine, because the internet is so efficient at transmitting information as a service. It fell to its own demise when it had to admit that it was offering hype about its service.  Today it trades at roughly $2 and change.[4]

Pageviews, in the end, counted too much.  The fundamentals of a business model still remained: One has to provide a business model that works.  It doesn’t change the fact that unfortunately, it is very difficult to value a service.  When a service relies on some new form of mediated interaction, questions arise about what the ideal model of a business should be, since it is a mark of the unknown.  The seamlessness of the interaction made it more difficult to understand what the company was doing.  In the end, companies still need to prove they have cash flow and profitable: The reasons why had radically changed.

[2]John Cassidy Dot.Con Perennial(New York: 2002) 94

[3] Startup.com. Stream Directed by Chris Hegedus and Jehane Noujaiam New York. Pennebaker Hegedus Films

[4] John Cassidy Dot.Con Perennial(New York: 2002) , 178.