The 'Arms Merchants' Ended Up Defenseless

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Didn't anyone ever think it was going to rain? The story of 2000 was not the collapse of the dot-coms; they actually started their stumble in 1999 and broke down fatally in April 2000. It is the story of how the infrastructure folks imploded.

If you recall, at the beginning of this year all we heard from the analysts was, "You have to be in the arms merchants, the ones that would do well no matter who won, the off-liners or the onliners." Didn't matter, with these infrastructure plays: They would get paid by everybody.

Turned out to be more analyst hogwash in a year where analysts revealed themselves as bull-market players. (So many folk revealed themselves as bull-market players that it may be wrong to signal out analysts, but they get paid more than most.)

The surprising thing, though, was that unlike most dot-coms, which didn't have much going for them other than page views, the infrastructure companies, the Tannings and the Brauns, the Scients and the Viants, the Cysives and the MarchFirsts -- sounds almost Clement Moore-like in cadence, where's Blitzen? -- had giant revenue and even some profits! What happened here? Where did those go? I think that's the real economic destruction story of 2000.

First, I think these companies suffered from one of the main characteristics of the dot-coms: bigitis. That's where board members, particularly from venture capital firms, say "Heck, if this isn't big, I am not interested. We didn't get in this business to be niche." Ugh, most businesses start out to be niche. If you force-feed them, like some sort of junior high school kids on steroids, they aren't ever going to make it to the pros. I have no doubt that if Sam Walton decided to open stores on a plan dictated by venture capitalists, Wal-Mart would have gone belly-up years ago. I know a lot of these firms suffered from it because having done some ad work for TheStreet.com, I knew these people were spending big bucks on media campaigns to win over the 42 readers of Business 2.0 and Industry Standard. (Oops, I know you are never supposed to reveal that nobody reads the two "Bibles" of the dot-com industry, let alone all of those other publications I keep hearing about.)

Alas no one does read them, except the people who run Bertelsmann, and I am tempted to sell them a couple of concepts for $100 million if they are so inclined. MarchFirst went a step further and paid millions upon millions of dollars to show ads of mountain people and their dog watching black-and-white television. Go figure. Whole industries sprung up to cater to the vanity of these Web designers and creators and they had a field day! I sure hope they get paid.

Second, these folks went out of control to bid on the services of people to fill out jobs. I figure they thought they were like consulting companies with deep pockets that could last forever. They simply didn't think that business would ever dry up. They clearly never wanted to say no to a client, not understanding that some business just simply isn't worth taking or, like so many of the daffy Web clients they worked for, can't be monetized.

Third, they had no concept that all of the bricks-and-mortar clients were just trying to ensure that they would not be Amazoned by new competitors and would slow down development to a trickle once that threat was dead. That's where, if you are the Gotham Times, you decided to set up your own in-house Amazon, to stop TheStreet.com from killing you, until you get so greedy that you decide to follow the Amazon model yourself and come public, only to discover that the window is closed! Don't need that TheStreet.com anymore, let alone those high-paid consultants! Or your in-house people, for that matter! Hoo-hah!

Fourth, they never thought the stock market would ever run out of dollars for them. The truly amazing thing is that many of these firms actually got to the hallowed second round of public financing. They got to the secondaries that allowed them to raise tons of dough. And they still squandered it. Can you believe that? They still went through the money in record time.

Finally, nobody at any of these firms seems ever to have heard of a rainy day. They squirreled away nothing. They spent like mad. They never thought to hold back some of that cheap capital for when things aren't so hot. What did they think: They would all get bids? Don't they know that these companies are just agglomerations of people who go down big elevators at the end of the day and don't have to go back up them the next?

We have all read the tales of the stupid dot-coms, the pet/health care/content play with the great pedigree and the big ad budget and the category-killer in mange-on-the-back of pugs. But these people have all been unscathed. They have a lot more explaining to do, because the dot-coms were following a script of no profitability, just reach. What the heck were the excuses for these companies?