Search Salon

- - - - - - - - - - - -

Recently in Salon Technology

Is it time to buy Microsoft?
Wall Street has pummeled Bill Gates' stock price -- and the reasons are more psychological than financial.
By Steve Bodow
[04/28/00]

Sissyfighter
Meet Eric Zimmerman, the brains behind the Net's nastiest little game.
By Russ Spencer
[04/27/00]

Books
Zen and the art of start-ups
A Silicon Valley rebel gets spiritual about making money in "The Monk and the Riddle."
By Katharine Mieszkowski
[04/26/00]

Dot-com party madness
Forget about return on investment. Bay Area tech companies spend $1 million a month on food, drink and music in exchange for "buzz."
By Damien Cave
[04/25/00]

Technology: View from the top
Lean, green gene-counting machine
Incyte CEO Roy Whitfield gives biotech investors and patent critics a few lessons on genomic research.
By Mark Compton
[04/24/00]

Complete archives for Technology

- - - - - - - - - - - -

- - - - - - - - - - - -

- - - - - - - - - - - -

On April 14, following two weeks of steady decline, the stock market plummeted, sending the NASDAQ composite index down 27 percent in one week and the Dow down a precipitous 617.78 points in one day. It was the single worst stock market drop in recent history -- worse, even, than the 1987 Black Friday crash that led the United States into a recession -- and it was blamed entirely on the Internet. That weekend, the headlines in the newspapers heralded the crash as the final insult for a falling technology stock sector. "The Internet bubble has finally popped!" crowed a self-satisfied array of pundits, economists and experts who had long been waiting for this day.

But the following Monday, the stock market rallied, sending the Dow up 276.74 points and the NASDAQ up 217.68. A week later, it plummeted and then creeped back up yet again. The last few weeks have been dizzying -- you could get vertigo just watching your stock tickers splay across the screen.

Despite the market's ongoing uncertainty, however, it's clear that the Internet sector has been badly battered. Tech stocks that once strived for the $100 level are now barely grazing the teens; companies that were once the toast of the market, like DrKoop.com and CDNow, are reportedly on the verge of shutting down. Some companies, such as AltaVista and iSKY, have pulled their IPOs; many start-ups that were in the process of securing funding when the market turned south may still get their venture capital, but with a lesser valuation.

But what impact is this really having on the companies toiling in Silicon Valley? As their stock plummets and sentiment turns against them, are the CEOs and entrepreneurs concerned about the longevity of their own projects? Or is it business as usual? Executives sound upbeat about the future of their companies. Are they in denial -- or are they simply trying to maintain a rosy image despite a decaying stem? Could the long-term outlook be just as lucrative as it was just a few weeks ago? The answers to these questions are as difficult to predict as where the stock market will be next week -- but interviews with entrepreneurs across the Internet sector give some clues as to what the valley's inhabitants are really thinking.

Women.com

During the last few months Marleen McDaniel, CEO of the women's network Women.com, has been sitting down with her employees in small groups and talking to them about the stock market. Her company's stock, listed on the NASDAQ at WOMN, has spent much of this year in descent. It's currently trailing along at $5 a share, down from a peak of more than $23, and her employees (all 350 of them) needed a pep talk.

"I gave them my rah-rah," she says. "I had this little speech and reminded them it's a great company and this is what it's like to be a public company. This isn't about overnight millionaires -- that's a myth."

Two weeks ago, on the day that the Dow dropped 617.78 points, McDaniel was calling on investors. "They ranged from totally calm people, to people who looked like they got run over by a truck," she laughs. Today, she's sitting in her corner office in an office park in San Mateo, Calif., which has been transformed by a babbling Japanese fountain into a tiny oasis of calm in a sea of sweltering concrete.

Women.com has not fared well on the stock market recently; then again, neither have its competitors -- iVillage, which once sold for a breathtaking $99 a share, is now languishing at $10.50. Still, a recent story in the San Francisco Chronicle listed 41 local companies with stock performing below the initial IPO price. Women.com was listed at number 18; its stock has fallen 38.7 percent below its IPO price of $10.

McDaniel is not blasé about the fact that her stock is "in the toilet," as she puts it; but she's not ready to throw in the towel either. "I'm extremely resilient -- it has some realities, like it's harder to acquire companies," she explains. "But it's not hard to find employees, because [the stock] has a chance to go up. And basically business doesn't change at all."

She does point out that the low stock price could affect the company's capital-raising efforts. "We might have planned a follow-on offering. The trading volume is low -- people won't sell at these prices; you want a more free flow, it slows everything down ... If your stock is way, way down, it's very expensive to raise money."

McDaniel has observed the IPO frenzy firsthand: Since 1995 she has seen the number of tech companies going public explode from a handful to about 90 last year and 100 this spring alone. (Hoovers calculates that a total of 548 companies went public last year; IPO filings doubled in the first quarter of this year.) A market shake-up, she says, is a good thing -- there were, for example, too many pet portals, and the bubble needed to be deflated a bit.

More than anything, she hopes the venture capitalists who have been driving the money craze in Silicon Valley have learned their lesson. "It's a slap in the face for the VCs. They created this problem. They are really con artists, they have participated in a scheme -- the new, new thing."

But although her stock is bottoming out, and her employees sometimes need an enthusiasm boost, McDaniel is still optimistic about the future of her company. She has a partner in Hearst Corp., which is a major Women.com shareholder and has promised to invest more money in the company; in the short term, she is refocusing on reducing customer acquisition costs and reaching profitability -- something she says she could do "tomorrow, but if I cut back too far that's damaging too."

"I can't say I'm not emotionally involved [in the market], but my mood doesn't change or anything," she asserts, sitting up straight. "I'm focused on the business."

Next page | "No one is going out [with an IPO] anytime soon," bankers have told Productopia