My Dot-Com Boom and Bust Story

Recently, there has been a lot of discussion around whether a new “bubble” has hit Silicon Valley and the Internet world. Facebook, Zynga, Groupon, Twitter, and Linkedin all have substantial multiple billion dollar valuations which is often cited as evidence of this bubble. The recent $41 million funding round for social based startup Color before the launch of their product has generated even more debate about this bubble. Google’s Eric Schmidt, noted entrepreneur Steve Blank, and the New York Times all have recently commented with views supporting the concept of this bubble.

While I don’t know whether this qualifies as a bubble or not, I do know that this topic has started to permeate regular conversations of long time Silicon Valley tech folks. Inevitably, in these conversations, the discussion will go back to what was your Dot.com boom and bust story of the late nineties and early 2000’s. Having lived in the Bay Area for the last 11 years, I’ve shared my own story a few times of late at various social gatherings. My story isn’t about a startup that had a glorious, undeserved IPO followed by a quick flame-out, but rather a large corporate story trying to capitalize on this emerging, newly flush with cash customer base.

In 1999, I joined Intel and started working in their new Internet hosting division called Intel Online Services. In this 1999 article in the New York Times, the formation of the division and the planned $1 billion investment in the business is covered. Intel Online Services (IOS) provided managed Web services and hosting capabilities for companies worldwide through a network of data centers and a range of infrastructure and application hosting services.

Data centers were either built or partnerships created around the world with centers in the US, UK, Japan, India and Korea. Employees grew from zero to 1,500 almost overnight through transfers from other parts of Intel and aggressive hiring efforts around the world. It was an exhilarating experience for me, having recently completed my graduate studies and entering my first Silicon Valley job at a tech giant like Intel.

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Employed in the operations and finance groups, I worked on the cost models of data centers, deal terms with software and infrastructure vendors supporting the data centers, and setting up profitability targets for new services. I got to experience the whole business and see first hand what kind of new growth opportunities the positional presence of Intel in the technology ecosystem would allow them to pursue.

The expectation was that with the growing emerging dot com customer base along with enhanced corporate application requirements, a large customer base would be available for Intel to offer managed hosting services. After all, Intel built world class fabrication plants for semi-conductor production and would use that same technical reputation and know how to build world class data centers.

Competitively, IOS was trying to catch Exodus Communications, who became the leader in this space and had their own spectacular IPO in 1998. However, what happened to Exodus foretold an ominous future for IOS. In 2001, Exodus filed for bankruptcy. With the dot com bust occurring in 2001 and 2002, their customer base couldn’t pay its bills and new customers couldn’t easily be found to fill the already built, expensive data center capacity around the world. This combination sparked the end for Exodus in 2001 and led to a similar result for IOS.

In late 2002, after many redeployments of employees along the way, Intel shut down Intel Online Services. A similar fate as Exodus, the dot com customer base expected to consume the large capacity built around the world never materialized and the capacity remained idle. Within 3 years, the lifecycle of IOS began and ended.

In retrospect, Intel Online Services was simply ahead of its time. The cloud computing craze (in essence called the ASP [Application Service Model] ten years ago) of today is what the IOS vision anticipated supporting 10 years ago. Professionally, the Intel Online Services experiences still rates at the top of my career in terms of excitement and satisfaction and I will always look back fondly on those days.

Now, back to today’s bubble. One of the real differences I see in today’s bubble is related to the investments made by large, mature corporations. In 2000, giants like Intel in adjoining but somewhat unrelated spaces made significant investments into the Internet Services space to capitalize on the gold rush. The last 10 years of maturation of the Internet space has allowed new influential giants to emerge (Google, Amazon, Yahoo, Ebay, etc.) and naturally invest and extend into new Internet, where they are already embedded, markets such as social media.

Google and Amazon are hiring rapidly and making large investments seems natural and not as risky as when Intel invested in IOS more than ten years ago. I’m sure the debate about today’s bubble will continue and many smart people will chime in on both sides. But one thing I know about such bubbles is it can lead to some of the most exciting professional experiences one will have out here; the trick is to be ready and able to bounce back if and when the bubble bursts.