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Dot-com death plagues economy
14th century plague and 21st century plague move fast along trade routes
By: K.K. Campbell
 The Black Death plague may have wiped out one-third of Europe - circa AD 1350.
The Dot-Com Death plague may exact a similar toll on the tech business economy - circa AD 2001.
The Black Death started small and far away deep in the darker parts of Central Asia. But, once it slid into the primary trade routes of Europe, it began to travel.
The Dot-Com Death started small and far away deep in the darker parts of the Pentagon. But, once it slid into the primary trade routes of Wall Street, it began to travel.
The Black Death was imported into Europe by traders from Genoa. They maintained a fortified trading post on the Crimean peninsula. When the Black Death spread to the neighboring Tartars, the Tartars decided to blame it on the foreigners and laid siege. Unable to breach the walls, and with the plague decimating Tartar ranks, the besiegers began catapulting plague corpses into the outpost.
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Between January 2000 and 2001, 270 Internet companies closed, 70% in the last four months |
Infected, the Genoese pulled up stakes and sailed back home first stop, Messina, Sicily.
The Dot-Com Death was imported into Wall Street investment houses by Internet hypesters. Infected by the Internet bug, Wall Street conned individual investors into buying issue after issue of worthless Internet IPOs. Most of these public companies were doomed from Day One.
A loud cry about the coming contagion was finally heard on March 20 2000. Barron's magazine ran an article called "Burning Up".
Barron's did some simple math: here's how much money these dot-coms have, here's how much they lose each month, here's how many months before they have no more money. Prediction: Bodies would start dropping by summer 2000.
Come summer, it started. It got worse with each passing month. Among the corpses tossed into the street for the dreaded trustee-becchini to cart away: Pets.com, Eve.com, eToys.com, Furniture.com, Mortage.com, BabyGear.com, Priceline's auto unit, etc.
In January 2001, a record 49 dot-coms succumbed, according to Webmergers.com, a market watcher. In January 2000, there was one shut down. Between the two January's, 270 Internet companies closed, 70% in the last four months.
Webmergers.com estimates the January 2001 Dot-Com Death toll, alone, accounts for $1.5 billion in lost investment.
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Dot-Coms need four main suppliers: hardware, software, Web developers and online advertising, and all four show signs of disease |
The dot-com body count is alarming enough - but it doesn't stop there.
In AD 1347, the Sicilians ordered the plague ship out of Messina. The Genoese vessels began a march up the coast, infecting each port. The Black Death was on the move!
In AD 2001, like the Genoese, the dot-com ships infect all their primary trade routes. The Dot-Com Death is on the move!
Dot-Coms needed four main suppliers: hardware, software, Web developers and online advertising.
Sure enough, all four "second-tier" suppliers show signs of disease:
Advertising: Yahoo is the starkest example, its life blood is advertising. Those dead dot-coms were among the biggest buyers of online ads. Yahoo explains its reversals as a "weakening macroeconomic climate and the resulting shortfall in marketing spending by customers due to the economic uncertainty." Translation: online ad market really sucks.
Web development: Those dead dot-coms bought lots of Web stuff. Razorfish (New York) and Extend Media (Toronto) and others are laying off and "rethinking" their direction.
Software: In December, Microsoft announced its first profit and revenue warning in over a decade it failed to sell what it thought it would. In March, Oracle said it would not meet sales, and shares fell to lowest since November 1999.
Hardware: Compaq, Dell, H-P, Intel, Sun, 3Com and JDS Uniphase - lowered their revenue projections for 2001. Cisco fared no better.
The demand for tech equipment is slowing, partly because dot-coms aren't buying as they used to in fact, their old gear is re-appearing in the second-hand market at 30 to 70 cents on the dollars. The big companies say this doesn't really matter much but in an industry with thin margins, every bit hurts.
The hit that second-tier companies are taking was made clear when Cisco CEO John Chambers apologized, last week, for the collapse of Cisco's stock price and the decision to axe 3,000 workers.
Of the layoffs, he said: "I never thought I would have to do it in my life." Of the drop in demand: "Make no mistake about it, we got hit on the head."
Cisco's the primary manufacturer of Internet data networking gear. It was thought invulnerable to the spastic flailing of the dot-com sector. Shares plunged over 75% the last year.
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The Dot-Com plague is "moving inland" - as did the Black Death from those Italian ports first infected |
The Financial Times of London commented on Chambers' speech with a subdued awe: "The comments marked a humbling moment for one of the arch salesmen of the U.S. technology industry."
Chambers warned that plague on U.S. tech spending would continue through 2001 and infect other nations. Unless the U.S. contains the contagion, it'll spread to "Latin America, Asia and Europe in a major way."
Intel announced it's "delaying" building an Irish plant because of current business conditions. Ireland's economy is skidding to a halt it's a high tech darling. Intel estimates its own revenue will fall 25%. It'll cut 5,000 jobs - 6% of workforce before 2002.
It doesn't stop at the second-tier. From there, the infection spreads out more generally, in all directions. That's because the American IT sector accounts for some 50% of U.S. capital spending. Inventories have stacked up.
The Dot-Com plague is "moving inland" - as did the Black Death from those Italian ports first infected.
Data shows a clear trend toward U.S. recession. In 2000, the U.S. economy grew 5.6% (2nd quarter), 2.2% (3Q), 1.4% (4Q). It should be no better this quarter. The Consumer Confidence Index is at the lowest level in four years.
Second-tier companies are cutting staff and spending. Unemployed folks are falling back on savings. People who watched their day-traded stocks and mutual funds shrink suddenly don't need items like, say, new wireless phones. (Nor do they need E Trade or Schwab, thanks, but where's a human being broker?)
To no one's surprise, Nextel and Motorola are now undergoing troubles. Nextel CEO Tim Donahue said last week that he has "begun to feel the impact of a slowing economy and related cost-control measures being implemented by many businesses."
Motorola officially blames "the cooling economy" for the 7,000 pink slips dropped on its cellular phone division.
On March 15, Charles Schwab Corp., admitted its users' averaged daily trading volume sank 15% from January 2001 and 32% from February 2000. It will soon announce it's first substantial layoffs since 1988.
The Black Death spread from that trading post on the Black Sea and, less than three years later, had swept across the British Isles and into Scandinavia.
The Black Death resulted primarily from a little parasite (flea, Xenopsylla cheopsis) carried on the body of another parasite (black rats, Rattus rattus) on human ships moving along business trade routes.
Once in the cities, millions died.
The Dot-Com Death resulted primarily from a little parasite (Internet hypesters, Bombasticus bullroaricus) carried on the body of another parasite (Wall Street IPO underwriters, Securitus scammus maximus) on human stocks moving along business capital routes.
Once in the cities, billions of dollars died.
Of course the parallels could be mere coincidence.
K.K. Campbell is the Toronto Star's Internet columnist.
Posted: March 26, 2001
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