Behind The Financial Devastation Of The Dotcom Industry (2001)

it's the first anniversary of the dot-com crash and the local digerati in Sydney are regrouping that isn't a lifestyle it isn't an economy and given these days that it isn't even a prescription to getting rich quick it's hardly an aphrodisiac just over a year ago Australia could not get enough of comms the 30 billion dollar new economy spawned a new generation of wannabe millionaires in their early 20s now if they back the right chip they would make a lot of money in never have to work again tonight on four corners why so many believe this boom would never go bust April is springtime in Holland and with it comes hi tulip season it's hard to imagine that four centuries ago just one of these bulbs was worth as much as the best house in Amsterdam when the two have arrived in sixteenth-century holland its beauty and variety created an obsession and a market speculation in tulips created a boom in blooms but in 1637 tulips collapsed people sold their houses they sold their manners in their farms to buy one tulip bulb and they lost the whole line tulip mania set the pattern for future booms and busts from the South Sea Bubble to the railways and the market crash of 1929 today the tulip has gone online but it seems we've learnt very little just like tulips no one really understood the dot-com investment bubble and almost everyone has lost from it got stuck in in a big way mister we're holding we've reduced their holiday yeah their long-term investments leave their homes businesses they do I wasn't very experienced in stocks at that point in time and yeah so just help the held onto my stocks and yeah they just kept going down and down on it down Tokio home to the microchip outdoor electronic advertising the world's best internet active Mobile's and the biggest consumers of luxury goods in the world it is also where one of the creators of Australia's comm industry can be found these days his name is Chris O'Hanlon and he stumbled across the Internet in 1993 I've had a very nomadic childhood and here was a medium in which you were literally moving through data all over the world and it seemed to make perfect sense to me even at a time when it didn't make particularly much sense to anybody else the dot-com he created was spike networks spike story is a classic tale from inside the bubble Chris O'Hanlon's internet journey began a long way from Tokyo six years ago in a small house in Sydney's leafy Rose Bay the seeds of one of Australia's best known comms were sown the plan was to convince Australia's top companies that they needed websites on the Internet and then to design and build them Ruby blessing was the designer at the time it was gutsy Chris and Ruby's first pitch was to auto giant Toyota we went in with a computer a site that was built a big screen said this is what the internet looks like you click here and you one look at the models and he's a picture of the car and he's all the specs and features and here if somebody wants to talk to you they click here and they can send you an email so there's this instant communication within Chris and Ruby got the Toyota deal and they were in business to be honest from the day that we started it I saw very quickly that we could grow this into at least a hundred 150 million dollar company I was absolutely clueless about how that was going to happen but there was a sense that we were on the cusp of something rather important and amazing and that we in Australia were going to be at the center of it somehow the third founder of Spike Steven Murphy was not far behind he's now busy with his own building project but his background in sales was just what Chris was after I received a phone call from Chris to meet with him and Ruby in hotel in Kings Cross where he pitched me the future of the web but desperately needed a Salesforce or anybody to create revenue operating out of Ruby's front room Spike's client list grew but there were other signs that Chris O'Hanlon was on to something already in the u.s. netscape which created the popular web browser and amazon the online bookseller were becoming household names so as the stock exchange which listed their shares nasdaq trades a range of high tech stocks but coms would drive the action over six years Nasdaq would saw from seven hundred and thirty billion US dollars to six trillion dollars sending world markets into a frenzy but internet fever didn't happen overnight back in Australia one of spikes first employees was Ben White I've until about 1998 we've been struggling to convince people internet was a good thing to get into and we have a very small number of people I remember quite distinctly over a couple of months suddenly switching the other way where people couldn't get enough of it and at that point it became like cattle ISM on steroids it was just it was unstoppable we had people you know literally banging the door down wanting us to do their sites they had everybody believe they could actually own a substantial portion of the Internet all they had to do was get a page with a bunch of links on and why wouldn't everybody in the world go to that page clients would walk straight in to an open plan office where you can see everybody and there's stuff everywhere and there's computers everywhere and there's phones going off and there's people doing things and it's really exciting it was so cool they didn't have a phone number originally it was like this dark underground organization and you somehow to find out through the grapevine how to even get a job interview there spike was seen as a culture weird a phrase where spike you're not I mean we said joke jovially but it was taken on board everybody there more competitors did not want to come and pitch against us they were inhibited by us but never have met us the Prine culture today among youth is digital spike is going to be the new score for the Disney of tomorrow the most magnetic part of Spike was its quixotic leader volatile and visionary Chris O'Hanlon was the son of one of Australia's best known authors Morris West Chris's charisma would clients and workers in a world of young computer nerds chris is one of those those original Australian entrepreneurs you know I guess the industry has a lot to thank him for he was the first person to charge a kind more than a million dollars to develop a website he broke a lot of new ground very creative they articulate Septim intelligent and manic depressant beneath all the spikes psychology though was a more fundamental problem money Stephen Murphy was under pressure to create sales I used to sit down each month and calculate what the overheads would be and they would in the second year would be over 350 thousand dollars a month I'd have to find that revenue every single month by the 20th of the month hungry for new revenue markets spiked soon outgrew Australia it was time to go in search of American dollars you know produce one thing mass producers for the same you've got 200 million idiots instead of 20 million idiots you know America was a big market but one already served by thousands of American web designers all competing for the same business one of the big opportunities with California culture net to take California culture to the rest of the world web sites were labor-intensive and costs were high spike needed cash the good news was the dot-coms were now hot property by late 1998 investors were only too willing to buy into the action in december australia's first dot-com float Liberty won set the pattern its shares jumped over 60% in the first few weeks of listing from now on the main agenda for any comp was to float I'm not too sure what came first the chicken or the egg the notion that we should expand massively and therefore we need to raise a deal of capital or we have an opportunity to raise a deal of capital what could be the reason for that it didn't matter what a.com actually did as long as it sounded sexy as it happened Chris Hanlon had been pushing a very sexy idea the Internet is a nation of its own the natural citizenship is youth we intend to be its national broadcaster have you ever wondered where to log on to a live 24-hour seven-day-a-week entertainment and radio network well it's called spike radio you have a story and it had to be a story that would turn on the market at that moment and the market didn't care if there was substance behind it or not really you know as long as the due diligence kind of fitted and the projections seemed okay and seemed to fit with what everybody else was projecting I don't think anybody wanted to dig any deeper and you know did that worry you by the time spike floated in July 99 it had morphed into a dot-com conglomerate the prospectus promised end to end strategic Internet services ecommerce solutions a radio webcaster a spike cast hosting network and a portal for hip young users never mind what it meant or that spike had lost nearly four million dollars in less than a year in the fabulous future spike would attract customers advertisers and money Spike's float was oversubscribed almost a third of its shares were floated at a dollar 45 if valued Chris is holding in spike at a cool 37 million dollars even though he couldn't sell his shares for two years they were frozen in escrow it was a lot of money but for me it was really the thing of of grabbing the brass ring of saying I took it all the way I took the company from zero to hero I followed the American arc that define the success of the web Enterprise we did it - Tazz Lipscomb a young surgeon in Sydney was a typical spike investor with little experience he couldn't get shares in the float but he bought in as soon as he could I think Chris Hamlin was quite a dynamo big media profile and there's always a lot of calls about them and they were expanding to America with their radio and they were very well known web producer and I'd known that they had done some big sites I think that they have done Toyota and some of the bigger companies how much did you buy I wish good bye 4,000 shares at about between a dollar fifty no dollar sixty okay and what are they now I don't look at them now I think last time I looked there were 30 cents it's not really a nice thing to do so I tend to avoid looking at the price of spike shares at the moment they're half that now are they okay 15 cents bargain why don't you my son who's holding on to a stock at the moment waiting for it to go up to the price they paid so that they can get out show hands can everyone come on be honest fund manager Roger Montgomery teaches investment strategy to market novices his message dot-coms fail the fundamental test of sound investment that the price of a company's shares should reflect the income it earns the price earnings ratios if you're going to buy a business you'll pay a multiple for that business now what multiple of the earnings should you pay seven times ten times if you pay ten times the earnings of the business it suggests that at the current rate of earnings it'll take ten years for you to get paid back for your investment using the earnings the problem was that coms had little or no earnings now the internet stocks were trading at multiples of four hundred times and five hundred times and even more and analysts were coming out and saying this time is different this time is not the same as before these prices are justified and the reason these prices are justified is because it's a new economic year it's a new era of prosperity this is this is going to change the face of the world your economy won't be like the old the new economy promised a revolution in efficiency basically internet would deliver products and services at a fraction of the old cost it followed that any shares in the new economy space could not fail to go up even shares in spiked with negative earnings where the p/e ratio was meaningless by December 2000 Amazon was worth 20 times more than Barnes and Noble the largest bookstore in the u.s. the analysts were saying well how can we just define these prices we need to put out a research report on this because lots of people want to invest in it but how can we justify ridiculous pease price earnings ratios of 400 times and it's tantamount to weighting 400 years at the current rate of earnings to be paid back for your investment how can we justify that we'll have to use some new ratios the metrics that people were using when they didn't have earnings to rely on were things like revenue or a number of customers or a number of pages that a website was actually serving up so businesses were being valued on how many pages of content were being looked at on the web even though those those pages were probably free they were almost certainly for free and there was no relationship between pages and visitors and visitors and customers and customers and purchases and purchases a margin for miles around the Poseidon leases companies and individuals have paid other claims in the hope that the line of the ore load will head their way and the problem it's no coincidence that some of the spurious calms came from the nation speculative heartland the West back in the 70s Australia had its very own mining boom and bust shares in Poseidon soared from 75 cents to 280 dollars and back again analyst Tim Knapton says that the game for tiny mining companies was back door listing just add dot-com to your name and cash in on the float frenzy I guess a lot of us were invited to plush CBD boardrooms to see these mining companies promote their their new electronic wares and invariably there would be the professor most advanced waste line resplendent silk tied mining veterans who of course were only too capable extolling the virtues of the boomin at large but invariably when the questions became more specific they would defer to an individual almost in the shadows who invariably was thinner more pallid and much more young who would be their IT geek so just how many of these spec mining companies did convert close to 100 just--how the more dubious coms were allowed to float is a very touchy issue for the stock exchange in 1998 the ASX became a public company in its own right its critics point to a conflict between its role as market supervisor and its number-one priority to earn profits from listing and trading in the year the boom peaked new listings more than doubled and ASX profits rose 60% the regulators in Australia at one stage appear to have been really bullied into making it easier for businesses to list on the Australian Stock Exchange because there was a very real fear that if the Australian stock exchange could not accommodate these businesses they would all go to the US and list on NASDAQ Australian listing rules were relaxed companies no longer need hard assets provided they can raise five million dollars in a float not too hard in a boom market the stock exchange declined to appear on four corners but in a written statement denied any conflict of interest adding were ASX not to have allowed smaller companies to list capital raising in Australia would have been confined only to larger companies that would mean that innovative Australian companies would be denied capital and forced offshore roger montgomery believes nasdaq has been much more lenient than the ASX during I think was late 1999 net j com listed on the Nasdaq and net J dot communist Securities and Exchange Commission filings said net j com conducts no business activity of any description net J com has no plans of conducting any business activity of any description but let me say this during the boom a lot of people bought that stock at $1 on its first day of listing it listed at $3 5000 went to $7 fifty seven hundred and fifty percent increase in price or six hundred and fifty percent profit and there's no business net J com is now trading at 20 cents Australia had its own share of irrational exuberance the country was raining cash in a climate of economic sunshine the market hype infected professionals and hunters alike you go to a pub you to keep people talking about over there you go and walk down the street that'd be people talking about shares an Internet the boom and I felt like I did not want to miss out and I didn't deserve to miss out and that I would do it for myself to make sure I didn't miss out yeah and it was a lot of almost not here but social peer pressure that if you weren't in on this you were a fool you know there's money to be made and if you didn't come in on this you know you'd lost your chance you're just a fool and I didn't want to be at fault on the broken floor share trading was in overdrive small investors were on the phone and as those in the markets say when the Ducks are quacking there's a moral obligation to feed them our phone calls were becoming more or less why aren't I making this money everybody else seems to be making it it seems to be so easy to make what is going on here occasionally it was difficult to you know keep the clients feet on the ground and say well look you know there are a number of things that you really shouldn't be doing here and by the way I mean this $100,000 that you're popping in ten different names how much of your portfolio is this how much of the assets is this oh it's a hundred percent I've just started to get into the market this is all going so well the whole investment premise for internet stocks was pay through the nose pay through the nose for the stock and don't worry about it because there'll be a bigger idiot than you who will actually pay a higher price for it later on in April ninety-nine one bank report from Merrill Lynch actually did advise investors that coms were worth paying through the nose for and punters did just that especially whenever news surfaced that a tycoon was sniffing around a dot-com well the grapevine became very effective in fact overly effective you know just about every company every one of those 250 or so companies were speculated to be the next Packer or Murdoch takeover prior of course that was never going to be the case but even the bigger players were forced to move online for fear that they might miss the next big thing or worse be taken over by an arrogant startup for those like bankers lawyers and accountants servicing the boom it was a money tree and one full of conflicts when it's booming everybody wants to be involved your underwriting side your corporate side your private client side your institutional side they all want to be part of the action and the pressure does mount from within to be successful and to be part of it and one has to be extremely careful that you know the screening process of what we're doing with regard to floats is still a strong in the boom times as it should have been and it is when we're not so busy in the ultimate self-serving twist the new economy created broking online punters could now trade unassisted and unguided for as little as fifteen bucks a trade the gossip of Internet chat rooms almost impossible to regulate replaced the advice of the traditional broker but the most powerful stock rampers were the dot-coms themselves with every new event or idea came a press release in the 12 months following the float spike had no less than 37 releases through the stock exchange the regulator really I guess was taken by surprise as much as the rest of us because these companies were were profuse evinced and and prolific in their deals and it was very hard to track as analyst regulator or investor frankly we make information Hanlin could talk the talk and he readily admits using the media sure and and let's let's not forget it was a symbiotic relationship they needed someone like me to add credibility to their home industry and you know I was great I was you know I was I was that sort of American Steve Jobs like mouth who really didn't care what he said we had people like Beasley and Alston walking through the office you know wanting to be part of this you know the sexy new thing and Chris was you know Chris was the poster boy for spy along with the hype came the money comm staff were paid with options to buy shares cheaply in the future when the shares went up they became paper millionaires suddenly employees were behaving like investors look the thing about spike is that it's a it's a it's a vignette of greed if you like everybody was being great you know people bought the shares to make more money people floated to make more money people left jobs for other jobs to make more money all this money came from investors and it was disappearing fast in the second half of 99 spike spent twenty million dollars but earned only seven although burning which is the difference between your revenue and your expenses six hundred fifty thousand dollars a month US that's a huge it's a lot of money no no yes well it will eventually be what we wanted to be spike wasn't the only big spender another Australian calm Isis communications spent five million dollars sponsoring world reconciliation Day starring Nelson Mandela thousands upon jobs its out companies like Yahoo and in the u.s. comms paid two million US dollars for 30 seconds of advertising at the Superbowl Spike's most famous flourish was its coming-out party for spike radio in Los Angeles it cost a reported 260,000 US dollars you really did break new ground in terms of Australian dot-coms having large parties you know there has never been a bigger one than that that's it once very sweet and very it's interesting in fact the truth of the matter is there had been several parties like that by web companies wasn't about Chris becoming part of digerati no I was already part of the digerati let's at least like an arrogantly assert that I was already there by December 99 cash burn was so serious that the stock exchange demanded quarterly cash flow statements from all coms but by then the rot had set in the rosy predictions of sales on the net and advertising were failing at spike radio no one was listening you know certainly we're talking in tens of thousands rather than millions which you know let's say is the amount of people that a niche radio station in say Chicago or Baltimore is getting but are you saying tens of thousands at any one time or over a month over a period of a week or so yeah and and you know in terms of simultaneous listeners you know between two and five thousand according to some X by cos there were as few as 50 in any event the audience wasn't big enough to be counted in industry polls but spike was burning people as well as cash Ben Stephen and Ruby all left the company I thought spy right it was a really dumb idea to be honest I knew it was a dumb idea and you know so I left after four and a half five years of giving my solemn blood I decided that was you know so I resigned I got sick of fighting for some reality checks and if that makes me sound kind of boring and old-fashioned which I think it did at the time it's like oh geez Ruby like not but the market was still a long way from reality the media was one of the worst culprits I think a new economy for the new millennium around the world hunters queued for a piece of the action in Hong Kong Tom calm was 669 times oversubscribed mania peaked in Australia when dot-com finance angel tin shed called for 60 second pitches from would be dot commerce the so-called elevator pitch pitcher Rama I'm in commerce Ellis from he ideas that if you could buttonhole someone for only one minute can you actually get the idea across enough for them to say I'll give you a million bucks by February 2000 Australian new economy industry was worth over 30 million dollars spikes shares which started at a dollar 45 peeped at $3 80 why didn't I sell them I thought they're going up this is fantastic they'll probably go further everything's good maybe rather than having ten eleven twelve thousand maybe I could get fifteen thousand dollars for these mobs wait and see the wait cost adds his investment around the Ides of March last year Nasdaq stumbled losing nine percent in a few days on the 14th of April it plunged another 10% I couldn't believe the numbers we were seeing I turned on the TV had a look at the CNBC or Bloomberg or whatever it was and I think there was red ink everywhere on April crash day shares in Australia's comms plummeted spike was one of the worst losing perfect value in one day unfortunately the the forces of fear are much greater and and work much more effectively on on people's investing activity than the forces of greed greed takes some time to disseminate and take hold but fear is just get me out now and everybody runs to the door at the same time the press was even louder on the way down dot bombs gone and dot-com questions were asked about whether brokers who make money trading booms or busts were profiteering by recommending buys as the market fell I think profiteering is a very very strong word I think in experience in terms of what happens when a blow off occurs and and the sell down starts is probably closer to the facts than any malpractice certainly a year on dot-com hopefuls are still hitting the streets so who were the losers well major companies spooked into big investments by the dot-com threat and those in the high-tech funds created to milk the boom took some pain but worst hit were average punters many who invested in the last two months at the height of the market the name spike if you think about it just spike is a sharp up and a sharp down so that was the story of my spike experience very metaphorical I wonder how many people really did get hurt I think there are probably some but you know let's let's remember such a die I mean I lost a hundred million dollars you say you lost a hundred million but you didn't come in at the top no that's true that's true but you know in a sense I came in somewhere a lot harder I had to build the company from scratch what seems incomprehensible is how full casts of revenue and spending could have been so wrong spike is going to be the news corp or the Disney of tomorrow for the year to September 2000 spike lost over twenty six million dollars in the u.s. 20 million more than the prospectus said it work our forecasts were optimistic not pessimistic we had succeeded in every challenge with to date why wouldn't we continue in having optimistic forecasts results with hindsight maybe they should have been pessimistic the Australian Securities and Investments Commission has tightened its rules to make forecasts more conservative but it took until February this year to make the change well it's true I think that had the current approach to forward-looking financial information been in place there may have been less issues go to market now that would have raised a different series of issues because in a boom people get very upset when they're not allowed to invest the regulator is concerned about false and misleading statements in prospectuses and threatens to refer some dot-coms to the Director of Public Prosecutions I would be surprised if there are not at least a few cases that are referred whether they lead to the laying of charges of course would then be a matter for the DPP beyond the prospectus there is a much bigger issue how calm founder's running public companies with no business experience were allowed to get so out of control I in many ways became a very very difficult person to deal with because it was this conflict on the one side there was this you know public company that was at that time highly successful and on the other side there was for me a sense that I had betrayed some collective dreams and it drove me very much inside myself and you know I arrived in a place where it was very difficult to emerge in any kind of sane way the board sacked Chris O'Hanlon over the crash weekend in April he had never made any secret of his manic depression but there was clearly extravagance and a claim of sexual harassment which he strongly denied according to Chris spikes directors should take some of the rap for the excesses one felt that at the time one was getting the right advice and that one was trying to make the right decision which doesn't abrogate my responsibility through the CEO but you know this this wasn't like me saying hey let's spend more money here that's been more money that it's clear that many dot-com directors never understood their duty to shareholders some should have wound up their comms before the money ran out but the regulator dismisses calls to raise the bar for directors we've had this debate many times in Australia and no government has decided to go down that track then often what happens is that we go through booms people in favor of like regulatory touches of prospering economies very understandable but of course when things downturn and people start to lose money everybody's looking for someone to blame calm collapses are now weekly events in fact one of the global industry's most popular websites these days is a us underground gossip site that charts the failures actually love it I say that despite having I think several pages devoted to some of my lesser know and vices and and and traits but it's fair to say that nearly everything that's on there is accurate to a degree almost uncomfortable absolutely uncomfortably so and so despite deserve a place on tech company calm well it's certainly in the kennel in terms of being a performance dog I mean it reached a market cap off the top of my head of something like a hundred and sixty million you know back in the halcyon days of February last year and it's now down to less than 5% of that so a lot of very disappointed investors yes it wasn't just investors who lost out dot-com employees got their marching orders and boom parties turned into pink slip parties in the US at least 50,000 lost their jobs when the crunch game spikes LA office was downsized from a 6212 I mean it was anger there's you know nothing short of anger I I would have I mean on a couple of occasions I had people shouting at me you know telling me I didn't understand and and so yeah I mean though it was because their expectations had been dashed you know they they thought that by getting into this business they could become incredibly wealthy incredibly quickly and never work again that was all it was always that sort of talk never work again so far spike is a survivor it has sold down part of its stake in spike radio and is back where it started web design and consultancy with a new CEO reflect upon it rationalization is struck we've survived the tech wreckage we're standing tall we have good commercial backing and we still have at the heart of ourselves our traditional core competencies I see that as a pretty good mix pretty good chemistry for success going forward like spike the rest of the local digerati are licking their wounds one year after the crash this anniversary breakfast is oversubscribed just like the floats that were going to make them millionaires but most now work in traditional companies that are swallowing coms or growing their own net businesses the new mantra is clicks and Brix coms merging with blue chips last year in Australia two billion dollars worth of goods and services were bought over the net true believers say they'll be back as for the dot-com punters many didn't even read prospectuses those that took the tip from the cabbie last year have only themselves to blame two years ago lots of money now small investors are looking for better ways to manage their money but if history is any guide this won't be the last boom and bust it's happened before it'll continue to happen and and people will make the same mistakes that they've made in the past where'd you want to go today Cho I've lost a lot of money on the Internet I still might Ruby my shares are held in escrow I wouldn't buy a new tire I don't think with the number of shares I have in the car there's no love lost between the three co-founders of Spike the original deal gave Chris most of the shares but it's symbolic that all three see their future in web design the industry survives if somewhat more modestly than predicted that's what we've seen in in previous boomers whether ripples of radio or railroad or TV or even you know the tulip boom whatever that the companies the handful that survive turn into big conglomerates and those that are lucky enough to pick those stocks do very well over you know many many years 400 years after tulip mania tulips are still thriving in Holland the Dutch dominance of the world industry is the legacy of their crazy boom the.com believers say their industry is now taking root a tulip by any other name you you

Channel: Journeyman Pictures

Views: 27,136

Rating: 4.8625002 out of 5

Keywords: journeyman pictures, news, current affairs, world news, documentary, Dotcom, Computer, Internet, Economics, Stocks, Shares, Trading, Market, Industry (Organization Sector), Finance (Industry), Business, Crash, Money, Chris O'Hanlon

Id: fAcRXxaGYyM

Length: 44min 47sec (2687 seconds)

Published: Wed Aug 26 2015