PS Consultants - ideas & solutions

So who screwed up the tech business..?
January 2001

Well, I hate saying told you so, but I did. From an earlier edition...

"Lastminute.com did a great job of giving the e-naysayers an opportunity to forecast the end of the technology boom in world stock markets; but perhaps the disappointing sag in the price when the shares became tradable was the fault was the greed of those who set the price of the share offer. So this specific example of over-pricing might not herald the end of e-civilisation as we know it - but since all "dot coms" are grotesquely over valued when measured with the yardsticks of olde world bricks and mortar businesses, then it might just be enough to start to poke a hole in the fragile dam of confidence that is holding up the valuations in this sector."

As we have seen, more than this fragile dam has been breached in the meantime, and not surprisingly, this opinion has now been joined by many others. The events of March 2000 do seem to have triggered a complete meltdown in the internet-related high technology business sector, and there is an increasing volume of vitriol being poured on the venture capital and investment banking industries.

One commentator, Eric Jantzen, wrote a rather direct piece in Green Magazine (

http://www.greenmagazine.com/2000/07/000718b.asp ) is quite brutal on the matter:

"Venture capital companies, investment banks and brokerage firms are primarily responsible for the Internet mania. So-called "Internet technology" companies were created by venture capitalists in cooperation with investment banks for the purpose of issuing worthless stock to an uneducated public "

Eric goes on to point out that the media industry that is/was also deeply involved in taking the advertising candy from the baby, is equally culpable in the matter, suggesting that the marketing was for contrived solely for the benefit of hyping the brand and hence the stock price - and not actually ever seriously proposed to get the business towards an old-fashioned profit. There was a belief that first mover advantage in anything.com was essential. And to maintain first mover advantage, it was necessary to advertise like crazy.

The internet geeks did just enough in terms of the technology to cause their backers to foam at the mouth and fund them to chase the opportunity to sell their stock to the public. This was nothing more than a lottery where the insiders could manipulate the balls, just about legally.

The investment banks played the game very nicely, so for every genuine groundbreaker like Yahoo that actually came along from the ground-up at the inception of the commercial internet (and got the hype going to convince enough people that here was the new Klondike), there were 1000 try-ons that were ignited by just enough cash to get to an IPO, in the hopes of enough of a stock hike on floatation that the "financial engineers" could escape with their booty before the fools-gold bubble burst.

 

But Eric may be a little over zealous in his condemnation of the VC industry. The financial markets are now littered with venture funds now struggling to clear up the mess. So was that mess created because the tap simply got turned off in April because of the high profile collapses, or because some of the shrewder bankers simply wanted to stampede the market and then go looking for fire sale bargains..?

Some estimates suggest that it will take a good year for many funds to "take out the garbage" and recover a sense of decorum. All sources of venture capital are now sounding very prissy about wanting to see real profits and track records. So it's probably time for the scam artists to move on. Indeed, the very next example of hypesters and bankers screwing a perfectly good technology business opportunity is already upon us - the daft prices for the spectrum in the G3 cellular business were symptomatic of the frenzy that undid dotcom.

The dawning realisation that the punters are going to have to pay 1 a minute for something they don't want anyway seems to have woken a few slumbering bean counters. Too late. 15bn is the cost of getting fibre to every building in the UK, and 24bn is the price already paid for Tony and his cronies to invest on winning the next election. Mind you, that's not quite enough for a Millennium Dome in each marginal constituency.

Playstationary

On the subject of hype, we've recently seen Sony's Play Station 2 launch. TV pictures of scrums of people old enough to know better support the theory that TV gaming is just as much a dangerous addiction as anything that can create any sort of dependency.

What a frenzy. How delightful to be able to market a product that requires no advertising or selling, just manufacturing. Is there really anything going on with the PS2 that a decent PC game cannot equal - or maybe even exceed..?

OK, so a fancy graphics card is going to be necessary - but knowing Sony's commercially astute lock-in for software, aren't users willing to compromise just a bit for the prospect of low cost (and free) software..? Apparently not. So I'll have a pint of whatever Sony is drinking, please!

 

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