Doug Elwell, Inc.: News: Transcription: Chicago eBusiness Year in Review: A Report (Part 1 of 3)

Tuesday, May 13, 2008

January 16, 2001:
Chicago eBusiness Year in Review: A Report
(Part 1 of 3)

Event Date: Tues., Jan. 9, 2001
Location: IIT's Rice Campus, 201 East Loop Road, Wheaton, Illinois
Attendance: Around 50 people
Rating:

Speakers:
- Gary Ruderman: [Former] Editor-in-Chief, I-Street Magazine
- Brian Timpone, [Former] Chief Content Officer, ePrairie
- Ron May, The May Report
(Speakers are listed in order of appearance)
Hosted By:
Lawrence Lerner, President
The Association of Internet Professionals (AIP) - Chicago Chapter

Story: Part One | Part Two | Part Three
Transcript: Part One | Part Two | Part Three

by Doug Elwell

n a cold winter's night in early January, two months and a day after I was laid off from divine, I gingerly decided to re-enter the IT world once again. This time, however, I was only representing myself and my company which, I thought to myself, is the way it should be.

Once More unto the Breach

I entered IIT's Wheaton campus, a mere ten minute drive from my home/office in downtown Wheaton, purchased my ticket, and sat down along with the 40-50 others who had come to see the show. Ron May was going to be one of the speakers, and though I had read his running commentary on divine over the previous year and had come to rely on him for information about divine and the Chicago IT industry in general, I had never seen him in person.

First off, Lawrence Lerner, president of the Chicago AIP chapter, came to the fore and gave us a brief summary of what we would be discussing. He then introduced the other two speakers, Gary Ruderman from i-street and Brian Timpone from e*prairie, representing two of the three major IT news sources for the Chicago area. Mr. May, representing The May Report had not arrived yet due to transportation problems, so Gary and Brian came to the floor to begin the discussion in earnest.

Lawrence then had the audience identify themselves and what company they were representing, if any. I thought that was a nice touch, as it pointed out that the local IT community is not just a faceless entity, but a collection of real people, all of whom have something to contribute to the discussion. When it came to be my turn, I really felt empowered to be able to say that I owned my own small company, that I really was somebody — not just another number in some large corporate entity. I realized then that I never wanted to go back to the 9-5 grind — this is definitely where it is at. And many if not most of the other people there were also entrepreneurs, owners or part owners of their own businesses — yet more evidence in my mind that the small business owner was the wave of the future in the IT industry.

Gary Ruderman started off the discussion, giving a modest summary of his career, which was surprisingly extensive. Mr. Ruderman has been in journalism for over 20 years, starting off at Crain's Chicago Business, and working at other such industry giants as the Financial Times of London and Time Magazine. Last March he had taken a job at the Chicago Sun-Times, and from there had almost immediately been recruited to work for i-street. "On Thursday I was the editor of the Sun-Times, on Friday I was the editor of i-street." ¹ he recalled.

What Is This 'New Economy' You Speak Of?

Ruderman then went on to describe the New Economy as largely — if not completely — as a

"The Internet was the get rich quick scheme — and it was a Ponzi scheme."

Ponzi scheme — "The Internet was the get rich quick scheme — and it was a Ponzi scheme." ² This was a fairly radical statement, but upon reflection, essentially correct. The New Economy was a false promise of overnight riches, based on the premise that the Internet would somehow magically generate wealth by the mere fact that it was so new and different, everyone would use it to do everything, from taking a shower in the morning, going to work, eating, sleeping ... everything you could imagine plus whatever else some marketing genius could invent.

The New Economy kind of snuck up out of nowhere, appearing relatively quickly over the last couple of years to bedazzle potential investors with the hope of instant riches — and for some, to be fair, this is what happened. To those of us within the IT industry, the Internet — the backbone of the New Economy — was already fairly well understood as being, essentially, a new medium through which to perform financial transactions, including the selling of products and services, among other things. Some believed that it would overrule if not outright replace more traditional media such as phone, fax, and good old fashioned verbal communications. This "New Economy", for some reason, seemed to have a magical quality about it that, in the minds of some, apparently freed it from the restrictions that kept the so-called "Old Economy" from truly excelling. It was this glamorous quality that made it particularly attractive to investors, many of whom did not understand the technology behind what they were investing in (and still don't). The promise of the New Economy was the rush of excitement brought about by the potential for instant wealth via IPO, or the development of a new technology that would be universally adapted and make its owner(s) rich beyond the dreams of avarice. Ruderman succinctly summarized this by saying, "The promise was, if you got into the New Economy, in six months you could retire." ³

What analysts are now saying (and have been saying for some time) about the New Economy and the Tech Crash of 2000 is this: the tech market was massively overvalued, and a correction was imminent. Why? Because the laws of economics are the same in cyberspace as they are everywhere else. With everyone scrambling for the big score enjoyed by early adopters and innovators such as Bill Gates, Steve Jobs, et al, massive amounts of money were poured into startups with poorly thought-out business plans and management with little or no experience in the web space. Then, once the Justice Department cornered Microsoft and began the process of dismantling it, the tech market — reacting to this radical intrusion and its even more radical potential consequences — began to panic. The surface of the speculative "bubble", already strained to its limits, suddenly burst. The rest of the process, of the "walls" of that bubble collapsing, are what we now know as "The Tech Crash of 2000". This crash was far from being a surprise, however. In fact, it had been not only expected, but predicted, as the amount of speculation that was going on was truly phenomenal. As Ruderman put it, "Some people call it a tech crash, I call it 'the return to sanity'." ⁴

Ruderman went on to describe the scene in Chicago specifically. Chicago tends to be more conservative and

"Some people call it a tech crash, I call it 'the return to sanity'."

less speculative than the Silicon Valley crowd, because Chicago already has a robust 'Old Economy' presence, with a great deal of industry, even its own stock exchange. "The difference between Silicon Valley and Chicago is that there is no trading pits — there's no commodity pits in California. So if you need a buzz, if you need a 'danger high', well you invest — you invest in startups. Well we never had that — we've had stability in Chicago." ⁵ As a result, Chicago will recover more quickly, and its economy will remain stronger both in the short and in the long term. First, however, the correction must run its course.

2001: The Great Shakeout

2001 will be marked by a "great shakeout", where all the startups that were formed last year, whose business plans were not founded on sound financial principles, will be eliminated. Ruderman explains,

I started reporting on what I think is going to happen this year. Economically it's like a dog who got water dumped on him in April of last year, and ... when dogs get wet they shake, they shake from the front to the back, to the tail. From what I heard, the first quarter is going to be the great shakeout because, actually by the end of February there aren't going to be that many companies left. And the companies that will be left will have P2P — Path To Profitability. ⁶

With little or no venture capital available, there will be few startups, and those companies that started up in 2000 will be held accountable for being profitable or disappear:

The year 2001 is going to be a very sane year. At the moment, people are telling you that venture capitalists are not putting any money in any sector whatsoever. If they are putting money in it has to be follow-on money. They've already made their large investment and they've got to keep those companies alive, or kill 'em. So, the year 2001 is a year of sanity. ⁷

Ruderman then ceded the floor to Brian Timpone, Chief Content Officer of e*prairie. Timpone has a varied journalistic background, primarily in TV journalism. He worked for a CBS affiliate, NBC affiliates, CNN in Washington, and CNBC in New York. He then ventured into the web world, first working at Zacks.com, a financial research site based in Chicago, where he started a news operation, then moving on to golfspan.com, "last year, last summer, right when it was hot." ⁸

We're Supposed to Make Money?

Timpone's venture into golfspan.com opened his eyes into one of the fundamental problems with the dot com world: more often than not, these small companies had interesting ideas, high morale, and lots of energy, but no idea of how to make money. Their revenue models, if they even had any, were often totally ineffective.

Now golf videos are popular, but there were several problems with this idea that were not considered, as Brian explains:

It occurred to me, that you couldn't really watch the videos online because no one really had a modem fast enough to watch them, and it was just as easy to pay ten bucks and to go buy the videos yourself. You could play them over and over again, and you could stop, and ... it was like my first lesson in the Internet. ⁹

Timpone neatly summarized this basic problem with most dot-com ideas: "If you want to look at Internet ideas, you want to be sure whether or not they will work." ¹⁰ One prime example he used is the proliferation of online food shopping sites such as ~~Webvan~~ and Peapod, both of which he thinks may not survive the dot-com shakeout:

I don't have a car — that's why I use it. But most people do have a car.... The problem is that its really not that hard to go to Dominicks to buy the same stuff. In fact, people like to go to Dominicks to buy that same stuff. And because the Internet is not so ubiquitous, available everywhere at every time, these ideas aren't flying. And Webvan — here's my prediction, if you want another one — is going to go out of business. There's no question about it. They spent gobs and gobs of money building these warehouses, and paying big salaries, and luring away Andersen Consulting CEO George Shaheen ... for Lord knows how much money, and there's no way they could afford that. People still like Dominick's and Jewel. And I bet there are people here who probably never even heard of Peapod or heard of Webvan, who even knew that it existed. And believe me, they spent plenty of money on marketing to try to make sure you have. I think that's the problem with the Internet — people try to do things that just aren't that much more compelling than the way it is now.... ¹¹

One of Timpone's major points was that the Internet simply is not suited for certain uses. Some things are just better left to real life, such as shopping for food, socializing, meeting potential mates, and so forth. "The question is that it's so hard to get it the way life currently exists." ¹²

Meet the New Economy: Same as the Old Economy

Timpone reiterated Ruderman's belief that there is no 'New Economy' — it is simply the 'Old Economy' with an additional medium through which to transact business:

I think that we shouldn't get caught up on the difference between 'Internet companies' and 'regular companies'. It's all the same — there's no 'New Economy'. It's the same economy, there's just a new twist on it. There's this new invention called the 'Internet'... just because you get off the Internet doesn't mean that all of a sudden you've gone old school. I think that's kind of a problem. ¹³

Timpone finished up his soliloquy summarizing with the fact that Chicago is still the best place to set up shop, because there is so much expertise available. Moreover, we did not blow all of our money on dot-com ventures, so there is still capital available to be used profitably in 2001. Basically all that remains to be done before our economy can start up again is for the mistakes of the past to clear themselves up — in other words, for the New Economy gurus to realize that business is business, no matter what the medium.

[Make sure to visit next time to read part 2 of our Chicago eBusiness in Review report, where Ron May makes his grand entrance and the discussion turns even more lively.]

Story: Part One | Part Two | Part Three
Transcript: Part One | Part Two | Part Three

Brand Warfare: 10 Rules for Building the Killer Brand
David F. D'Alessandro
Rating:

Powerful lessons on how to build and sustain your own "killer brand". Creating and sustaining a good brand is the most complex and perilous task any business will ever face, yet nothing is as misunderstood. Under the direction of marketing wizard David D'Alessandro, John Hancock transformed itself from a sleepy old life insurer into a leading financial services giant, with a sustained 20% annual rate of growth. In Brand Warfare, D'Alessandro draws on his personal experience as a brand-builder and examples from America's smartest and most foolish corporations, developing principles that you can use in any market. At the same time, he creates an entertaining picture of the marketing business with anecdotes that convey a keen sense of the absurdities of corporate life, balanced by a tremendous respect for the consumer. This tough-minded, funny, and refreshingly candid book gives you a proven roadmap for marketing success as you learn:

Why every business needs a good brand to compete

Why consumers need good brands as much as good brands need them

Why sycophancy from the agency and meddling from inside the company will sink your campaign every time

About sponsorship: how to avoid being taken, and how to make the investment pay for your brand

Why it's as important to market your brand to your employees as it is to your customers

Why every business decision should be filtered through the prism of the brand

Gonzo Marketing: Winning Through Worst Practices
Christopher Locke
Rating:

The coauthor of the no-more-business-as-usual blockbuster The Cluetrain Manifesto — which basically told Net-age marketers to stop talking at their markets and start conversing with them — follows up with a book that's more a highly entertaining, nimbly erudite screed against our current mass-market, mass-media culture than it is a recipe book for e-commerce marketing success in the post-cyberboom era. Writing in a paler imitation of the profanely irreverent, freely associative "gonzo" journalism style pioneered by his obvious idol Hunter S. Thompson, Locke starts with the by-now-familiar idea that old-style mass-marketing "broadcast" advertising just won't work on the Web. Indeed, he says, conventional print-ad tactics as embodied online by banners and pop-ups might actually generate more ill will than sales, and that's why companies must use the Web to somehow enjoin their products and services to the quirky niche interests of the gazillion individual cybercommunities (or "micromarkets") whose greatest advantage for marketers is how freely and speedily their members talk among themselves, touting a brand when and if it's truly deserved.

The Virtue of Prosperity:
Finding Values In An Age Of Techno-Affluence
Dinesh D'Souza
Rating:

In The Virtue of Prosperity, former White House policy analyst Dinesh D'Souza offers the first in-depth analysis of the spiritual and social crisis that has been spawned by the New Economy and new technologies. The chief problem societies have faced "since the time of the Babylonians," writes Dinesh D'Souza, has been the problem of scarcity. "But now that age has passed, and America has a new problem: coping with prosperity." It's a good problem to have, but also a serious, even debilitating, one. "The moral conundrum of success," the author continues, means that all too often, "the body is flourishing, but somehow the soul still feels malnourished." D'Souza is well known for his bestselling conservative books Illiberal Education, The End of Racism, and Ronald Reagan. On these pages, however, he seems to set politics aside to ask deep questions about the meaning of life in a world of material abundance. (Review by Amazon.com)

The Monk and the Riddle:
The Education of a Silicon Valley Entrepreneur
Randy Komisar, Kent L. Lineback (Contributor)
Rating:

Prospective entrepreneurs may think they know everything there is to know about starting a business in Silicon Valley. They can draw up business plans, have meetings with venture capitalists, maybe even get funded and actually launch a start-up. However, in The Monk and the Riddle, Silicon Valley sage Randy Komisar reasons that's only half the equation for success. And it may not be the important half. Komisar has worked with a number of companies — Apple, LucasArts Entertainment (the gaming division of George Lucas's empire), and WebTV among them — and has come to a rather startling conclusion: if you can't see yourself doing this business for the rest of your life, don't start it. In other words, he wants to see passion and purpose in business, not just spreadsheets and a by-the-numbers business model.

To illustrate, Komisar takes the reader through a hypothetical Silicon Valley start-up, with an eager entrepreneur named Lenny trying to get funding for an online casket-selling business. As Komisar helps Lenny find the real purpose of the business, the passion behind the revenue projections, he reflects back on his life as an entrepreneur. Komisar emerges as a master storyteller, the kind of guy you'd feel honored to share a bottle of wine with. And you believe his conclusion: "When all is said and done, the journey is the reward." It's great if you've made billions on the journey, but the important thing is that you do something you can truly throw yourself into. (Review by Amazon.com)

Burn Rate
Michael Wolff
Journalist Michael Wolff is a recognized pioneer in the business of cyberspace, meaning he has been developing products and services for the online world since the dark ages of 1994. During the intervening years, however, not all the activities he engaged in, nor all the people he dealt with, left a pleasant taste in his mouth - although, to be sure, his cumulative adventures certainly have been very lucrative.

In Burn Rate: How I Survived the Gold Rush Years on the Internet, Wolff pulls few punches as he candidly and methodically recounts the single steps forward and multiple steps back that marked his experiences while trying to transform a fledgling print media enterprise into a towering New Media colossus. After developing a series of "NetGuide" books that proved hugely successful, he attempted to transfer the concept to a variety of online offshoots and in so doing connected with Wired magazine, Time-Warner's Pathfinder, the late Robert Maxwell's media empire, AOL , assorted venture capitalists, sundry competitors, and numerous would-be partners. Burn Rate is a fascinating tale that might best be characterized by the old adage that warns us to "be careful what we wish for, for we just might get it." (Review by Amazon.com)

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