Friday, September 08, 2006
Deconstructing The Crash, Pt 1
"...E-Offering health analyst Caren Taylor doubts Drkoop will attract many new investors. "We believe the only exit strategy for the company - aside from bankruptcy - is a merger," Taylor wrote last week in cutting her rating on the stock from "buy" to "hold."
Like other 1.0 dot coms, Drkoop spent heavily to drive traffic to its site. The company has $147 million in portal deals, including a four-year, $89 million agreement with America Online. Such obligations help explain why Drkoop lost $56.1 million on $9.4 million in revenues in 1999."
Why did the Crash happen? In no small part, it was because the institutional arrangements which dominated yesterday's media and industries were deeply out of sync with the nature of value creation itself.
Here's a great example. Drkoop, one of the most notorious bombs, was far from unusual in spending huge amounts of cash on deals to essentially buy attention. These deals, interestingly, were characteristic both of the venture industry and 1.0 media - where risk is diversified by syndication (or affiliation, same diff). That might have been a great strategy - because the price of attention has today, exploded.
Except for a big assumption, which ultimately, led to a fatal error - buying attention from yesterday's monolithic attention brokers couldn't work for the very simple reason that control was shifting to consumers themselves.
The game was won by Google - who pre-empted the threat of revolution by decentralizing and democratizing control, not fighting this great economic shift. That's an important (but probably very opaque) point which we'll return to later.
Worth remembering, as the pace and fury of deal-making in 2.0 media accelerates.
Post a Comment