Rubbing salt into wounds is about as much fun as a columnist can have.
It’s the New Year – time to review old predictions and make new ones. Before I critique myself I can’t resist a friendly jab at my colleague Bob Metcalfe, who stuck his neck way out last year to predict that the dot.com bubble would burst November 8th, 1999.
It didn’t, of course. Bob made the same mistake he always makes: He made a specific, testable prediction. That means we got to find out if he was right or wrong. He was wrong.
Bob was wrong on two fronts, really. First, he got the date wrong. That’s minor. His bigger mistake: Predicting that the falling-out-of-fashion of dot-com companies would be an event – a bursting bubble.
But he was right on the important issue. Although venture capitalists still like dot-com investments, skeptics are becoming more vocal. An increasing number figure they’re the real-world equivalent of the satirical company in Garry Trudeau’s Doonesbury, whose only product was its stock.
Trudeau, however, got it wrong, too. What’s really going on is that the whole IPO phenomenon has become a new avenue for publishing fiction.
Here’s how it works: Imagine you think up an interesting premise, but can’t figure out a way to attach a plot to it. Here’s an example – the draft prospectus for an actual dot-com retailer that sells product at negative margins, planning to make up the difference in banner advertising revenue.
Since banner advertising is a dead medium, the authors of this prospectus must know it’s fiction. That doesn’t matter, though, because nobody involved in an IPO makes money on company profits. The entrepreneur is simply an author without a good plot, disguising bad fiction as a prospectus. The entrepreneur and his or her venture-capital partners – the publishers – get their shares cheap, planning to sell them at a profit to first-round buyers when the company goes public.
These first-round buyers don’t care if the company ever makes money, either. They’re in and out quickly – like bookstores, keeping inventory to a minimum. They create publicity and high margins (through their own purchasing activity) then sell to second-round investors.
These second-round investors play the role of book purchasers. I hope they enjoy reading the prospectus. In most cases, that’s all the value they’ll ever see.
This sham won’t collapse catastrophically, because the excess of investment capital won’t cease to exist all at once. Starting sometime this year, however, dot-com IPOs will become chaotic.
Dot-com fiction will suffer the fate of overworked plots in the book trade. What will happen? In books, as in television and movies, sequels, spin-offs and copies eventually wear out a genre. What happens next are gimmicks and hybrids.
Gimmick books, like The Duct Tape Book, can make a lot of money. Gimmick dot-com companies will attract a lot of venture capital for the same reason – their novelty will carry them through an IPO whether or not there’s even a pretense of substance to them.
Hybrids succeed by providing publishers with a sense of safety. Buffy the Vampire Slayer is a hybrid: Teen angst meets horror. You’ll see a lot of tracking stocks for “clicks and mortar” companies – one business version of a hybrid plot-line. A tracking stock, if you’re not familiar with the term, is a separate stock issued by an existing company for a single line of business. It “creates shareholder value” without the company having to do anything new and useful – it’s a different way to try to get your stock over-valued by Wall Street.
Understand, I like the clicks-and-mortar concept. (For that matter, I enjoy Buffy.) Some clicks-and-mortar implementations will be non-fiction and highly successful, because real businesspeople will run them, for actual profits. Tracking stocks, like any other activity that distracts company leaders from running their business, strike me as a bad idea. You’ll see a lot of them this year.
Meanwhile new Internet author/entrepreneurs will publish increasingly bizarre fiction in a desperate attempt to prop up the genre, but to no avail. As real investors lose interest, venture capital will gradually dry up.
The Internet bubble won’t burst. Wrong metaphor. This year, the wind will go out of its sales … uh, sails.