The Real Story Behind the Dot Bomb "Crisis"

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We polled regular contributors to see what they thought about the current state of the Internet industry in Ireland and beyond.

Has the media hyped the dot bomb? How will their businesses be affected?
Is the current spate of layoffs and closures a temporary blip or a sign of real downturn? Read on to see what our contributors had to say.

P a r t i c i p a n t s   :

DALE AMON is CEO/MD of Village Networking Ltd, Belfast, Northern Ireland. Dale has been on the internet before it was a capitalised Noun and seen it grow through all its phases. He currently specialises in bespoke firewalling, security and Linux servers. -- email: amon@vnl.com web: http://www.vnl.com

FRANCES BUGGY is MD of corevalue limited, which specialises in management of online assets. A board member of the IIA (Irish Internet Association), Frances was chairperson in year 2000. -- email: answers@corevalue.ie web: http://www.corevalue.ie

JOHN COLLINS is a freelance journalist who specialises in Internet, technology and business issues for a range of publications including Business Plus, The Irish Independent, TVB Europe, ComputerScope, The Web Magazine and Apple Report. -- email: jcollins@ireland.com

DENIS GALLAGHER is Loan Portfolio Manager within the Credit Risk Management division of Accbank plc. He maintains a keen interest in eCommerce. A qualified certified accountant, Denis holds an MBA degree from UCD. He has also completed the new NCI certificate in eCommerce course - focusing on strategy and old/new economy alignment - from the National College of Ireland. -- email denis.gallagher@accbank.ie

BRIAN HARTE is MD of Active Online, internet marketing specialists. He lectures and writes on the Internet and was on the Board of the IIA (Irish Internet Assocaition) for 2 years. -- email: bharte@activeonline.net web: http://www.activeonline.net

TOM MUPRHY is MD of Spin Solutions, which specalises in back-end systems integration. Tom established Spin Solutions in 1999 and is now primarily responsible for managing product development. -- email: tom@spinsol.com web: http://www.spinsol.com

MERVYN TAYLOR leads Pathfinder Projects Ltd, which provides project development and support services for innovative projects with particular emphasis on information society issues. Mervyn has made a series of presentations around Ireland on 'E-government & the citizen'. -- email pathfinder@ireland.com web: http://www.pathfinder.ie

A big thank you to John Collins for helping put this issue in shape!

My own 2 eurocents: The froth has been blown off the cappuccino. Goodbye fast cars and dreams of even faster wealth. (To those few who made a bundle - congrats!) The Internet and electronic new media come back to earth, where business has always been a sweaty and pragmatic enterprise requiring substantial effort. VCs and financial folk need to focus on solid business plans, invest wisely and be prepared for both the long haul as well as new forms of e-business - only this time without the "pie in the sky". Be prepared also for more social pressure from quarters as yet unseen. The Internet is still about connecting people and inter-acting. We've yet to hear from the Masses and their governments. The idea that e-commerce fulfills all desires is a myth. Look for new pressures and new opportunities for development.

Now, let's drink our coffee before it gets cold ;-)

Andrew Lovatt
editor
email: alovatt@redmoonmedia.com
web: http://redmoonmedia.com

The Real Story Behind the Dot Bomb "Crisis"

Q U E S T I O N   :

With Ebeon, Nua, SoftCo, Oniva and many others either scaling back or shutting up shop, what do you think of the current state of the Irish technology and Internet industries?

"People get laid-off in traditional companies and it doesn't become a 'crisis'. These were companies who weren't paying attention to the basics of business -- profit and loss, cash flow, management accounts etc. Boring old-economy procedures but as any geneticist will tell you, anything 'old' gets that way because its successful in surviving in its habitat. The "new economy" crowd would do well to learn from their 'elders'. Even though I am the MD of a new technology company, our board of directors includes people who have many, many years experience in business." -- TOM MURPHY

"Being an e-business does not confer immunity from traditional business problems of cashflow management and overtrading risk. And it is wrong to criticise new economy companies for not bein impermeable." -- FRANCES BUGGY

"It's a natural shake out arising from a new paradigm." -- DALE AMON

"Companies fail for many reasons: too ambitious, poor business models, not competitive, no cash, growing too fast. I don't think the market slow-down is the primary cause of the layoffs. Any claim that that is the case is misleading. The US economy is only slowing down now. With the flurry of new companies it was inevitable that some would fail or have to scale back." -- BRIAN HARTE

"Clearly many Irish Web consultancies felt the party was never going to end. Having made lots of money in 1998 and 1999 they did not reckon on the downturn in the sector that began in 2000. That said there is some amazing talent in the Irish industry - particularly at the coalface where developers, designers, webmasters and others are working. These people are bouncing back with new ideas and new companies and are not getting downhearted about being laid off or made redundant." -- JOHN COLLINS

Q U E S T I O N   :

Are the current layoffs and closures a sign of worse to come or the much-awaited re-balancing of the industry's over-expectations?

"Gartner have put it well when they describe their new economy "hype cycle". We have been through the "trough of disillusionment", and we are on the early gradient of "the slope of enlightenment", on our way to "the plateau of profitability". New economy companies have suffered from overly positive and overly negative hype -- both of which have been unreasonable attitudes not founded on a genuine understanding of the sector. -- FRANCES BUGGY

"ICT's and Internet related technologies and developments are in serious danger of becoming another phase of ephemera because of the endless hype and Alice in Wonderland approach. 'Over promised and under delivered' will be the epitaph." -- MERVYN TAYLOR

"I think it's a re-balancing. There is no way back from where we have come to. The Internet will continue to transform the way people do business. The worry is that with all the negative publicity, traditional businesses will shy away from Internet projects and as a result Ireland's business climate could be damaged." -- JOHN COLLINS

"I see it as a much awaited re balancing but the media tends to portray it as the beginning of the end and that may in turn negate investment." -- DENIS GALLAGHER

"There is no getting around it that the Internet is a very big thing. It is not surprising that a lot of experiments in finding out what to do with it fail. Most start-ups do. Most entrepreneurs go through several ventures before they succeed. Industries and people both go through learning curves when they move into virgin territory." -- DALE AMON

"The only risk to the industry is the issue of a "self fulfilling prophecy". If enough people read that there is a "crisis" then they will become more guarded about expansion plans in the IT sector.

Think of it another way. Can you REALLY see an alternative to computerisation? Could you go back to not having the Web and email? We've already come too far in this direction -- and it's the *right* direction -- to change course now. All you are seeing is a clipping of the excessive expenditure that characterised the birth of the Internet industry." -- TOM MURPHY

Q U E S T I O N   :

Do you think the correction in the markets, as evidenced by the weakness of global stock exchanges, is going too far?

"No, except when it stops a good concept getting funding through a reflexive lack of confidence among the investment community. There is no need for a lack of confidence. There is a need for all players to inform themselves on global trends, because a number of temporary factors are at play:

1. The hardware and operating systems sector, which expanded rapidly to serve the corporate hardware upgrade needs of Y2K, are now naturally downscaling in the face of a natural resultant downturn in purchasing. This has taken some by surprise and they have judged it as "IT Jitters"

2. Some ill judged business models which got amazing amounts of funding -- based on an appetite for experimentation on the part of VCs wishing to embrace the emerging "dot com" sector -- have now fallen victim to the performance overestimations which must have been embedded in their original funding proposals. This is a predictable outcome from a natural learning curve.

3. There is a slight cooling in the US economy, which often comes with a change of leadership. This was even more likely given the Clinton/Greenspan boom of the last 8 years. The fundamentals are still good, and I believe Greenspan is a republican, so he should get along equally well with George "dubbya". -- FRANCES BUGGY

"Yes, I think it's an inevitable backlash from the excitement of the past few years. There is a danger that real damage could be done to economy given how broad the stock ownership base is now. This is a big test of economic resilience." -- BRIAN HARTE

"The drop in the American NASdaQ that Allan Greenspan wanted and pretty much engineered cleared out a lot of companies with either no real business model or else no sense of how to grow a company by building fundamental value rather than seeing how fast they could burn investment. The unfortunate side is that quite a few ventures with real value also got dragged down." -- DALE AMON

"The market went too far during the bull market. With all respect to Baltimore as a company, did anyone really think that it should have a larger market capitalisation than the Bank of Ireland? Now conversely the market has gone too far in the opposite direction and companies are being devalued just because they are in the tech sector. Investors are not looking at the fundamentals of companies. I think this is largely due to the number of inexperienced investors who are playing the markets at the moment. They were looking for a fast buck and now they are getting burned." -- JOHN COLLINS

"Yes, this correction is going too far. Markets fall and markets bounce. I worked for a long while writing software for the trading floor of a worldwide bank and I learnt a lot about how the institutional investors operate. Their signature is very apparent in what the markets are doing now. Years ago the percentage of day traders, or people who are trading from home at a low level and for short periods, could be counted on one hand. Now its reaching 30 percent. These people are NOT professional gamblers the way the institutional investors are. They are the greenhorns at the poker table so are you surprised they are being fleeced? The market is scared, so the day traders sell. If someone doesn't buy then the price falls. Since the only people buying are the institutions (if at all, remember some of these dot.coms really DO stink) they can determine when they step in to buy and at what price.

Do you really think they are going to step in and do anyone a favour? Before it bottoms out? If you enjoyed the elevator ride to the top, you should get back on when it has returned to the bottom.-- TOM MURPHY

"No the correction isn't going too far -- competitive and fit players will emerge stronger with more focussed "real" plans." -- DENIS GALLAGHER

Q U E S T I O N   :

Is Ireland feeling the chill of the US downturn?

"The gloom about the US is overdone - it will bounce back and has done already." -- DENIS GALLAGHER

"Yes. Companies who were targeting the US market have already started pulling back and are focusing on Europe where confidence is higher. In the US people are currently afraid to commit budgets to large IT or Internet projects." -- JOHN COLLINS

Q U E S T I O N   :

Have we gone from a situation of anything goes, to one where almost nothing goes?

"Not from where I am sitting. I think Ebeon blowing up has sent a shock through the industry which is being exaggerated. Anyone with their ear to the ground knew Nua was going to restructure and Oniva slipped their announcement in while the spotlight was off them. If the first piece of bad news sends you running for the shelters, you have no right to be the head of a company, much less an entrepreneur-- TOM MURPHY

"That may be the perception, which is being underpinned by those who have never come to terms with the inevitable reality of the ebusiness revolution and the changes being wrought by the broader Internet economy. Those people have from now, until broadband comes to the average business, to complete their adaptation process." -- FRANCES BUGGY

"Yes, people are being extremely cautious. Real business models, execution and cash still talk, but it's tight out there." -- BRIAN HARTE

"Hopefully not. Ireland never really experienced the same hysteria where ridiculous ideas were getting funded with no sense of how they were going to make some revenue. People wanted to own the online widget market, with no thought as to whether widgets could be sold online. Jewellery and furniture are two markets that spring to mind. The worry now is that companies with good ideas and products are not getting second round financing because investors have got the jitters." -- JOHN COLLINS

Q U E S T I O N   :

Has the media contributed to the situation by not covering it in a balanced way?

"They could not do otherwise. There has always been economic boom and bust -- even before total media. They're like the oxygen in the Challenger disaster, they didn't cause it but they accentuated it." -- BRIAN HARTE

"Partly -- both the media and the investment community are prone to communicating in terms of a kind of shorthand which arbitrarily categorizes investment opportunities and new economy companies e.g. dot com is a top level domain not a real description of a business." -- FRANCES BUGGY

"You have to be joking with this question? I was on the Internet in 1989 in Ireland (four years before the Web was invented) reading things like The Irish Emigrant in my mail box and chatting on Usenet in soc.culture.celtic.

In 1995 the media discovered that the nerds were doing something odd over there in the corner, they gave them a few column inches in the Times under the heading of Computimes.

In 1997/8 suddenly there was a "revolution" going on and every journalist worth their salt was "surfing the Web!". First sign of trouble and it's a "crash", a "crisis". For those of us who have seen and been involved in the bigger picture this is a fleeting moment of rough water. The "revolution" started 20 years ago and has at least another decade to run before being "mainstreamed".

The dot coms and the move to embed the Internet into business practises is a race. In a race there are many losers and we are beginning to see the results of the heats.

The journalists in general tend to lack the understanding of the industry at its core and also the breadth of vision to see this for what it really is -- a speed bump." -- TOM MURPHY

"As someone who has covered technology for nearly six years now I have to admit that some journalists did get carried away. I think also there was some measure of envy at all the twenty-something millionaires that were created (journalism isn't the best paid profession ;-) ) and as a result some journalists are only too ready to sound the death knell.

Speaking for myself I saw the hype and the funding of daft ideas in the US for what it was. I thought Boo.com was a ridiculous idea badly executed from day one and I said so in print several times. I remember being at a press conference "she gave Boo.com a good review" was used about another journalist as a put down. However this is not the case for everyone. I think the problem in part was because business journalists began covering the area and while they may have understood the financials they had no idea of the technology challenges. Similarly technology journalists were covering business stories with little idea of the funding issues.

On the positive side the amount of media space given to the Internet and technology has expanded massively and this can only be a good thing. It is now up to people in the industry to engage in a healthy dialogue with the media rather than retreating into their shells and refusing to take phone calls." -- JOHN COLLINS

Q U E S T I O N   :

What will change the negative view and restore balance to media coverage?

"Success of some industry poster children such as Amazon, E-trade etc. and a few local successes would restore balance. It's time for the big names to shine if they can" -- BRIAN HARTE

"The increased understanding that comes from measurement of local stories against global norms - Ireland is not yet the dot in dot com, Ireland is an open export lead economy -and although we are a significant exporter of software, we are a dot on the map. Lets not imagine that Ireland sets trends or lose our sense of proportion." -- FRANCES BUGGY

"Understanding. Vision. The integrity to write a story that is more substance over style-- TOM MURPHY

Q U E S T I O N   :

Do you think the Irish Net industry as a whole is under threat, just the largest enterprises, or is not under threat at all?

"Do you think we can continue as an economy without computers? People need software to do their jobs. All industries use software. The Internet sector may be more threatened by a down turn than other areas of the software industry because it is relatively isolatable. But frankly a few jobs being lost does not equal a 'threat' to an entire industry. We need a little perspective here" -- TOM MURPHY

"All business is always under some kind of competitive threat -- the nature of the threat keeps changing. Why should the Irish IT/IS, e-business, and software sectors be immune to this immutable law?" -- FRANCES BUGGY

"The industry is constantly under threat from advances in technology, new products etc anyway. Constant development is the key to sustained growth. I don't believe that threats come from economic aspects alone, however growth would not be as rapid when consumer/business demand is weaker." -- DENIS GALLAGHER

"There's no real threat -- but there is a shakeout. The biggest thing that all this has done is to create an entrepreneurial mindset. There's no going back. The people who don't make it now will go again. This creates more role models. A major societal force has emerged that simply wasn't there pre-1990." -- BRIAN HARTE

"Clearly there will be more fallout but I don't think the industry is seriously under threat. However if the negative sentiment continues many Internet projects could be canned or put on hold." -- JOHN COLLINS

Q U E S T I O N   :

What does the future hold - for the Irish Net industry and globally?

"In a world where the social and the economic are becoming ever more blurred it is time to ask hard questions about what people might actually want from technology. This means that information society/e-commerce issues must be debated and discussed more. Public policy and opinion has to have some bearing on the developing scene, and in that context, ideas such as a new public utility - guaranteed electronic markets - needs to be considered.

Massive projects are underway, such as REACH/e-broker related to the development of a coherent, integrated system for accessing public services electronically -- a system in which the public can have absolute confidence. A similar vision and planning needs to be organised in the form of a public/private partnership to develop a ubiquitous system of electronic markets which is underpinned by government and trusted third parties.

It's not that the project is wrong -- consider that it may be that the project managers had no clear vision of what they wanted to achieve other than perhaps realising short term personal gain." -- MERVYN TAYLOR

"Possibly some retrenchment within the large businesses may materialise but given that the EMEA market is served from Ireland some comfort can be derived from the fact that these markets are not as saturated as the US market." -- DENIS GALLAGHER

"The changes in the world economy due to the Internet have barely begun. They are going to be very drastic, perhaps more so than many old industries would wish. Many of them have not yet dealt with the reality of a world of one on one interaction without intermediaries; of the drastic drop in people's valuation of information products, whether it be books or music; of the impossibility of stopping information flow, copyright or no, between consenting individuals; of the impact of content created and distributed directly by the writer/musician/artist or whoever; of a world in which hardware, software and bandwidth costs are tending towards zero. What is really left are service, skills and knowledge." -- DALE AMON

"If I got my wish, especially now that the pressure of Y2K, and most of the EURO preparations are complete, Irish indigenous companies, and their CEO's in particular, would make company-wide ebusiness evolution and the positive management of their (increasingly remote) knowledge workers a top priority, paying particular attention to the integrated strategic use of technology and innovation for competitive advantage, including business process re-engineering, back end integration, security upgrades, and cognisance of the changing regulatory environment." -- FRANCES BUGGY

"It's time for the IT sector to stop churning out gurus and start listening to what their customers need to achieve and build systems to accomplish that. The tail needs to stop wagging the dog.

The next 6 months will see us focus on making the whole Internet easier for the average office worker to use and get on with their work. Business-to-business will continue unaffected by the dot.com blowouts (and rightly so, the shake-out there is in no way related to the bricks and mortar companies extending a Web-presence). It will not be in the gigantic marketplace all-in-one solutions that will be foisted upon the market. It will grow organically through customer demand for easier access to billing/account information, catalogues, ordering etc. It's "boring" work that won't have journalists beating a path to your door to write articles about you but in many ways it's the really exciting story. It just can't be "soundbitten". -- TOM MURPHY

: : :    u p c o m i n g    h i g h l i g h t s

Frank Murray : Floating our way to e-Business - Review of a spectacular e-biz boatride

John Collins : The Big Boys Take Over Europe - Bertelsmann and AOL/TimeWarner

Andrew Lovatt : Get out of Dublin, fast! - Why we need to SPREAD the technology

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