As hundreds, if not thousands, of tech layoffs once again become daily news this week, we look back at the dot-bomb implosion of 22 years ago, when the Bay Area became a graveyard. f*cked companies.
In the first ten days of November, we saw hundreds of layoffs at Lyft and Stripe, thousands of layoffs at Twitter, and over 10,000 layoffs at Facebook/Meta. And if that hasn’t crossed your mind, a certain historical analogy has probably at least crossed your timeline: The SF Business Times wonders “is the Bay Area heading for another dot-scale meltdown? -com?” The SF Standard notes that “widespread layoffs have led to predictions of a bursting of the ‘dot-com 2.0’ bubble”. The Information has perhaps the smartest pun of the bunch, in a conversation with then-Treasury Secretary Larry Summers, who they say predicted “a level of pain that he compared to the dot-com collapse. “Peloton equals Pets.com,” he said.
But before you leave the ledge, it’s important to remember that we’ve been through this before, and we’ve been through it. quite recently. As Bloomberg observed on Tuesday this week, layoffs are “approaching levels seen in the early stages of the Covid-19 pandemic.” Despite the media coverage, current layoff levels are only a fraction of what we endured in March and April 2020 – although leading tech companies may have been spared at the time.
What’s happening in the tech industry right now has strong similarities to a dot bomb blast: it’s affecting the Bay Area more than the rest of the nation, it’s the downfall of types of “smartest in the room” founders who were spoiled by years of uncritical media coverage, and the gig was essentially over when the venture capital billions ran out before even a handful of profits came through. appear on the horizon.
During the dark days of the 2000-01 recession, we woke up, toasted a slice of Valu-Save white bread, poured hot water over three-day-old coffee grounds, and browsed the latest news on a site Web called FuckedCompany. This site no longer exists, but there are a few pieces available on the Wayback Machine. It was an incredibly crude and humorous news aggregator about the latest layoffs, filled with unfiltered and unverified gossip, and gave profane nicknames, NC-17, to the companies it covered. (Remember how they called Accenture “Ass-Enter?” It never got old!)
Like the current downturn, it was the aftermath of a bubble that culminated with a batch of money-wasting Super Bowl ads from companies that were drowning in VC money but had questionable business models. the best. But different factors led to this; a new generation of web browsers like Netscape and Mosaic made the Internet accessible to ordinary people, people quit their jobs to become “day traders” investing online with discount brokers, and a record 457 IPOs in 1999 seemed provide guaranteed wealth.
And these new boy-geniuses claimed to understand this “new economy” better than the seasoned analysts. Consider the then-popular Redwood City-based web portal eXcite, which was doing so well in 1997 that it refused to acquire a new search engine for less than $1 million. This search engine was Google.
Remember those Webvan boxes? Do you still have any? These boxes were sort of a symbol of the “new economy” model of giving away tons of crap for free, as part of the grow-at-all-costs business model where all that mattered was getting your name out there. Revenue would surely follow! After all, Webvan made an impressive $178.5 million in revenue in 2000. The problem was, as we learned during the Chapter 11 filing the following July, they had 525.4 million dollars spent.
And oh, the dot-com parties! The above company, Ask Jeeves, based in Emeryville, had Elvis Costello play at their company party in April 2000. “What you have is a $1 million monthly booze tab , food and music, all paid for by the new economy,” Slate wrote at the time. “Never before, not during textile, transport or steel booms, had companies spent so much money on people who did not work for them and who often had only a passing interest in the company.”
Booking Elvis Costello looked good – after all, Ask Jeeves’ IPO in 1999 at $14 and was at $77.81 at the end of that day. It would climb to $190 per share in December 1999, but within 18 months it would be trading at 86 cents per share. (Everyone remembers when Facebook and two other companies all launched a Gatsby the magnificent-themed parties at the height of 2015?)
Amid irrational exuberance, the tech-heavy NASDAQ index hit an all-time high of 5,048.62 in March 2000. But it would plummet 35% in just one month as the inability to produce profits sparked the grim harvest of mass layoffs in the bay. region, and recovery would take years. The NASDAQ won’t hit 5,000 again for 15 years.
Tens of thousands of laid off Bay Area employees, those of us who stayed, at least, tried to make the most of it. Something called Pink Slip Parties has become a craze for the newly unemployed. “Those laid off are given a red dot to wear, those who can offer jobs a green dot and those who just want to party – the laid back rather than laid off – are given a yellow dot,” the Guardian explained in January 2001, using good British jargon. “Parties now take place monthly, entry is free and the bars they take place in charge redundancy-friendly prices: $2 (£1.35) for a pint of beer or a martini cocktail. “
The magnitude of the job losses in 2001 was far beyond what we are seeing now. Two million people were laid off in 2001, according to the Silicon Valley Business Journal, as the dot-com breakup led to the economic shocks of the September 11 attacks and, to a lesser extent, the Enron and accounting scandals.
So the current tech downturn is now nowhere near the magnitude of what happened in 2000-01 – at least not yet – or for that matter, what happened during the Great Recession of 2008-10. , or the early months of the COVID-19 pandemic.
During the dot-com meltdown, companies went completely bankrupt, putting gluts of office furniture on the market. In the current list of layoffs, established companies are only downsizing. In fact, some are just downsizing to pre-pandemic levels after tech companies banked while the wider economy suffered badly. Consider Facebook, which just laid off 11,000 people but grew its workforce by more than 20% during the pandemic.
And we can’t help but notice another factor: the bloodshed has been worst in companies that have invested heavily in this nebulous Web3 concept. The companies that sink millions into crypto, blockchain, and decentralized metaverses have pretty much lost their shirts lately. Who knows, maybe this Web3 – whatever will work one day, in the same way that “dot-com” companies have finally become the way of the world and not just the advertising of novelties during the Super Bowl. But any new form of the web might not even look like the dreams of crypto evangelists today, and it might not even be called Web3.
In fact, in the future, “Web3” may become the shorthand term that turns out to be just as negative as “dot-com bubble”.
Related: Twitter conjures up Dot-Bomb memories with expensive World Series ad campaign [SFist]
Image: The pets.com sock puppet dog performs in an advertisement for the company, Los Angeles, California January 11, 2000. The San Francisco-based pet products company announced November 7, 2000 that it was closing its doors after failing to secure a backer or buyer. (Photo by Bob Riha/Liaison/Getty Images)
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