Young Entrepreneur Ryan Allis - Bio, Blog, Articles, Photos, and Press

Young Entrepreneur Ryan Allis

Dot Com Crash 2.0? What's Fundamentally Different This Time Around
by Ryan P. Allis, CEO of IntelliContact

A couple weeks ago my business partner in IntelliContact, Aaron Houghton, asked me via email what I thought about the Squidoo concept--Seth Godin's new web site that allows users to create "lenses" of high-quality content on every conceivable topic while sharing ad revenue with content contributors or the charity of their choice. I replied to Aaron that I thought the idea was "Rather brilliant. Make money off of adsense from hi-quality user generated content. Not sure how they?re doing, but ran into the idea about 8 months ago." Aaron responded to my email with:

"I agree, the concept is great. The proof will be in the value actually created for advertisers, which may be good but it of course is yet to be determined. If he can simply get a critical mass of users and visits we both know someone will buy it or sign a huge ad contract with the site. Isn?t this the exact premise behind the dot com crash, visitors = success? and all of these business are back in that battle again, and VCs are funding them. What?s different now? Is Google Adwords good enough that it has monetized the web traffic business so effectively that .com model businesses can now thrive? If so, what really caused the bubble to burst? It wasn?t a lack of advertising options. Was it simply missing the concept of targeted conceptual advertising which actually drives advertiser value, or has consumer and business spending increased so much online that it?s now viable for the first time?"

Aaron was asking a key question--what is it that is so different now with the web that is going to allow these web 2.0 services to actually generate real revenue and provide real value to users, measurable return to advertisers, and a smart acquisition for acquirers? As the CEO of a Web 2.0 software company, the answer to this question certainly interested me. Further, as the author of an article on the causes of the Dot Com Crash back in 2003, I thought it might be time to take a new look at the question. So here was my response to Aaron:

So what?s different this time around? Here's my take:

The Internet has more than 3 times as many users. In March 2000 the Internet had 304 million users according to Internet World Stats and Nua Ltd. As of June 2006 the Internet had 1.043 billion users.

We?re all on broadband now. According to Nielsen/NetRatings, as of February 2003, only 33% of U.S. Internet users were on a Broadband connection. This number increased to 68% as of February 2006.

Web technologies are developing that are making sites/web tools more useful or interesting causing people spend a lot more time online including services like MySpace, Facebook, YouTube, MetaCafe, Meetup, LinkedIn, BoingBoing, Digg, Flickr, Squidoo, and Xanga. In the same Nielsen/NetRatings report linked to above they noted time spent online increased from 51 minutes per day to 61 minutes per day between February 2003 and February 2006.

There are developed ad networks like Adwords, Miva, MSN Ad Center, Yahoo Search Marketing, and Federated Media that have large enough scale to make it easy for anyone to get targeted, well paying advertisers with just two lines of code.

The web is finally ready to grow up.

After reading this response, Aaron added an additional insight:

5. The average American Internet user did not trust the Web enough to place frequent large purchases online. Think about how few banks had online banking during the bubble era, that?s the most basic of trust extensions for the average consumer and it wasn?t even close to mainstream then. Trust is one of the primary pillars of web 2.0. The mainstream consumer didn?t inherently trust Web sites in 2000, now they do. So, the mainstream consumer was dumping money in their personal stock portfolio into web companies but was unwilling to buy a product from one of these company?s sites because they didn?t trust buying from the company online.

So there you have it--five reasons why the Web is just that little bit more resilient now that is allowing e-retailers, web-based services, and social networking sites to generate real critical mass sufficient to actually create sustainable business models. Don't get me wrong, the fact that there is a lot less media hype, much smarter individual investors who remember getting burned just a few years ago, and more experienced management teams that realize they actually have to generate revenue and eventually profits somehow is certainly helping as well. But the significant growth in the scale, depth, speed, usefulness, and ease of the Internet has been critical and is today making the web startup a fun place to work again with a real chance of getting acquired or going public one day and making a $580 million price tag for MySpace actually seem not rich at all. Cheers to that!