20 years from the dotcom crash to the app-ocalypse

In March 2000, I interviewed for a job at a startup headquartered in Philadelphia. Chaitime.com, a website focused on American desi youth, had been showered with venture capital funding, and was using some of the windfall to expand to India. I was offered double the salary of my previous gig plus stock options to hop on board the gravy train.

Technology shares had been going through the roof over the previous year, and dotcoms had seen an absurd rise in valuations at the speculative end of the market. In New York, the Nasdaq index had nearly doubled in five months to hit 5,000 on 9 March 2000. In India, where only one in 40 citizens used the internet, billboards for new websites lined the streets from Mumbai airport to the business hub of Nariman Point 25km away.

Nariman Point is where my new office was located, but we soon shifted to a larger space in Cambata Building at Churchgate, an art deco landmark that housed the famed Eros Cinema. In the second week of April, not long after we moved, the Nasdaq dropped by 25% in a single week, and the tech stock boom was over.

The music did not stop playing immediately. On 16 April, a ₹4.5 crore splurge by the entertainment-focused portal Indya.com took over the front pages of newspapers, including a few that had never allowed full-page ads in that space. We snickered when Indya.com’s site crashed on its launch day, but were facing a deeper crisis ourselves. Chaitime had a unique identity in the US but was just one generic youth site among dozens in a land where everyone was desi. There were also technical problems besetting us. At a time when web-based email offered a maximum storage of 10 MB, and the fastest dial-up modems topped out at 56 kbps, we wanted a dedicated 2 mbps E1 line, which required special permission from Videsh Sanchar Nigam Ltd (VSNL). Dealing with the corrupt and inefficient public sector monopoly that controlled India’s overseas communications kept one of our vice-presidents, occupied for weeks.

A small space in our first-floor office was given over to a ticketing site called MakeMyTrip, headed by an Indian Institute of Management, Ahmedabad alumnus named Deep Kalra and backed by the same VC firm that was funding us. Kalra’s IIM peers in Chaitime talked down his site, like rich kids sniggering about a poor cousin. MakeMyTrip would be among the few dotcoms that survived the massacre and flourished. Publicly traded on the Nasdaq, it is now valued at around $2.5 billion (around ₹18,126 crore), though it still struggles to turn a profit. Below us, the ground floor of Cambata Building housed a capacious branch of the music store chain Planet M, owned by the Times group. I purchased a few albums there, but downloaded more by clicking on the cat-wearing-headphones logo of Napster, a pioneer peer-to-peer MP3 sharing which eventually doomed all CD-selling franchises.

Chaitime continued to expand, opening a London office in June, or perhaps it was July. Never convinced about our viability in the longer term, I was by this point certain we had no route to an IPO or to making a profit. I went through the motions because the office atmosphere was pleasant, my colleagues genial, and the cheques arrived on time, but stopped commissioning writing and research for the art channel I handled.

By September, dotcom employees, cherished customers a few months previously, had become anathema to the financial services industry. None of us could get a credit card, leave along a bank loan, on the basis of our payslips. The writing, which had been on the wall for a while, was acknowledged by the Chaitime brass that month, and we moved into a period of suspended animation during which people in the office spent most of their time sending out CVs. My strongest memory of the last days is seeing the managers, men who were usually well-groomed and smartly turned out, all walk into the office unshaven, as if they had synchronized a switch to slovenliness. It was four parts stress and one part not caring.

The pink slips were handed out in November. Most of the Indian crew landed on their feet, but the Americans had a tougher time, with many going back to college to ride out the downturn.

Having experienced the dotcom crash, and the consequences of a growth-at-any-cost strategy, I sense that history is repeating itself, and an app-ocalypse might be around the corner. The scale being much larger today, the fallout of a crash will be far more serious. Two examples will illustrate why I am worried.

Paytm, which is India’s largest digital payments company, reported stand-alone revenue growth of 2.8% last year, rising from ₹3,229 crore to ₹3,319 crore. Its net loss, meanwhile, increased by a staggering 165%, from ₹1,490 crore to ₹3,960 crore. No matter how well funded a company may be, such profligacy is unsustainable.

Another of India’s most highly valued startups, Oyo Hotels and Homes, announced in February that a massive international expansion had led to a sevenfold increase in losses. I can’t understand why Oyo would enter markets like Japan. The fact that the company’s major stakeholder, SoftBank, headed by the visionary Masayoshi Son, is based in that country is insufficient reason. Oyo’s business proposition is providing clean rooms to travellers on a tight budget. A company that assures standardization at a reasonable price has good prospects in India, where knowing the flush and fixtures will work is a huge plus. Japan, however, is a nation where every room and toilet is immaculately clean and everything from light bulbs to vending machines to bullet trains functions perfectly. What could Oyo possibly offer in a market like that? Its move seems as ill thought-through as the expansion of Chaitime to India.

The New York Times recently reported on the upheaval in the startup ecosystem, with layoffs at firms like Zume, Getaround, 23andMe, Flexport and that desi favourite, Quora. India has already felt the jolt, with Oyo firing 2,400 staff, or 20% of its Indian workforce, in January. I fear things will get much worse before they get better.

Girish Shahane writes on politics, history and art.