Everything Old is New Again
(Business 2.0) – These days, Silicon Valley is behaving like an unreconstructed alcoholic. From the Sand Hill Road offices of top venture capital firms to the office parks where consumer Internet startups are again in vogue, investors are pulling out their wallets when they hear the right combination of buzzwords: blogs, social networking, user-generated content.
Some might be tempted to shake their heads. Aren't these the same people who, a decade ago, went gaga over PointCast's push technology, which delivered online news and information to your computer desktop? Today they can't stop talking about RSS feeds--which do exactly the same thing. Back then there was GeoCities. Today there's MySpace. Both built businesses out of hosting personal webpages, and both were acquired for exorbitant sums by large companies (Yahoo and News Corp., respectively). In the 1990s, Net2Phone was the hot company in Internet-based telephony. Today it's Skype. Online grocer Webvan was shuttered in 2000, but don't tell that to online grocer FreshDirect, whose chairman (the former CEO of Priceline.com) has said he's exploring financing options (read: mulling an IPO). "People are rediscovering a lot of old ideas," says Bill Burnham, a VC and former Wall Street Internet analyst.
To distance themselves from their ignominious predecessors, entrepreneurs insist that things are different this time. And in some ways, they're right: Many dotcom-era business models may simply have been ahead of their time. Seven years ago a third of U.S. households were on the Internet. Today almost four out of five are online, more than half with broadband connections. The bigger market makes it easier for new businesses to gain traction, while services such as music and video downloads are more appealing to broadband users. It's also cheaper now to set up an online business. Web server hardware that cost $25,000 in 1995 goes for $1,000 today. The price of a terabyte of storage has fallen from $1 million to about $30,000. Back then it could easily take $20 million to see if a wacky idea would work. Now the same business can get off the ground for $20,000.
Startups also have a better idea of how to succeed. In the late 1990s, attracting eyeballs was the name of the game. Trouble was, nobody knew how to make money from eyeballs once they had them. Then Google found a way to convert eyeballs into cash by charging only for ads that people click on. Similarly, MySpace may seem similar to GeoCities, but GeoCities never had MySpace's sophisticated--and viral--social networking. "The big difference between the late 1990s and today is we didn't have proven business models," notes Allen Morgan, a venture capitalist at Mayfield.
For today's startups, the biggest worry is the survivors of yesteryear: Amazon, eBay, Google, Microsoft, and Yahoo. "How is the company going to survive on the dance floor when the other dancers are elephants?" Morgan asks. Which, as business problems go, is also very 1990s. -- ERICK SCHONFELD