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Business News/ Opinion / The dot-com boom: This time is different
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The dot-com boom: This time is different

Unlike booms, which are all the same, every bust is unique

Illustration: Shyamal Banerjee/MintPremium
Illustration: Shyamal Banerjee/Mint

Bubbles are all alike, but every bust is unique in its own way.

It will soon be 20 years since the onset of the Internet age, publicly counted since Netscape’s hugely successful initial public offering (IPO) on 5 August 1995.

The date also marked the virtual death of the Grateful Dead, with Jerry Garcia’s demise. Ironically, the Dead will celebrate 50 years of their existence, with Trey Anastasio of Phish filling in for Garcia, in a three-day concert in Chicago in July that will likely be the biggest musical event of the year, on ground, on air and online. The Dead have also had a significant number of commercial releases over the past two decades, thanks to archival material.

Netscape, the browser, ceased to exist in 2008. The company had been gobbled up long before that.

There is an obvious moral in that story.

There’s more.

March 2000, a little over 15 years ago, saw the Nasdaq, the index that epitomized the new economy, reach highs that it didn’t cross again till last week.

If life, business and markets were symmetrical, that means all of us should be worried because the Nasdaq crashed soon after its March 2000 peak, losing almost 80% of its value over the following 30 months.

By November 2000, Pets.com, which symbolised the boom, had closed down. It is now a symbol of excess and veritably synonymous with the dot-com crash.

Could we be heading there again?

After all, even in India, newspapers, including this one, are filled with reports of dot-coms raising money as late investors rush to ride the boom, believing, almost naively, that when the time comes for them to exit, they will find a greater fool.

In late March, Michael Moritz of Sequoia Capital, an early investor in Apple and Google, warned of the high valuations of today’s start-ups and said he saw some going belly-up soon.

That’s not inconceivable.

Yet, this time is different.

For one, the overhang of an ailing telecom sector is unlikely to cast its shadow on the global dot-com business, although it may hit Indian start-ups in the space. Back in 2000, the dot-com crash was accompanied by a telecom bust-up with telcos in both the US and Europe suffering the results of a 3G auction.

Sure, Indian telcos are coming off an expensive auction for radio waves earlier this year, and are loaded with debt, but the big ones are still profitable.

Much of the investment in dot-coms in India is in e-commerce, a proxy, and the only one available to global investors and companies looking for a piece of the Indian retail market (Indian law effectively prohibits foreign investments in supermarkets and hypermarkets).

Start-ups, both in India and elsewhere are smarter too. Many are raising money now, when they probably do not need it. That money is unlikely to go into fancy offices or novel employee perks. Much of it will likely stay in banks, and come of use in the cold winter months that lie ahead.

Between 2000 and 2015, consumer and media markets have also changed. There are more people online, and more people buying online now, even in India, where some e-commerce firms reach every pin code in the country, a feat few companies in the real world can claim to have achieved. At least a tenth of the ad spends in media go to online media in India (and that’s a conservative estimate). And the dynamics of the Internet make it possible for even niche content created by an individual to be discovered by millions.

There will be media companies and other dot-coms in other businesses that will, no doubt, die in the coming winter, but many will survive too, fundamentally changing the industries in which they operate.

Booms are always followed by busts, but unlike booms, which are all the same, every bust is unique.

Will this time be different for dot-com companies? Tell us at views@livemint.com

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Published: 26 Apr 2015, 10:26 PM IST
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