Next to the company that tried to wire Web users to bar-code scanners, money-burning dot-coms like Webvan don't look quite so bad.

Published July 11, 2001 7:00PM (EDT)

Those grim, told-you-so pundits conducting postmortems of the Internet stock bubble have been quick to lash dot-com entrepreneurs for their foolhardy naiveté. "You idiots," goes the standard line of rear-view mirror commentary. "You were great at giving away stuff to the public, but you never had a business model!"

This week's news of Webvan's demise provides hefty fodder for this conventional wisdom. Here's a company that clearly provided a service that met a need -- lots of busy Americans would love not to waste time at the grocery store -- but never had a clue how to make money. Tsk, tsk, scold the pundits: what were they thinking?

Well, OK. It's pretty obvious that any business launched without a clear vision of how to sustain profits isn't destined for longevity. If, in the heady days of 1999, a motley cadre of venture capitalists, Internet visionaries and technology investors lost sight of that truth, it was, relatively, only a brief moment of folly.

The Internet industry and all of its "new economy" hype has now taken enough pulverizing criticism that it's worth re-examining the animus against it. After all, what were many of the highest-profile dot-coms that soared and then crashed really up to? They gave away previously expensive goods and services (e-mail, Internet access, even computer hardware) for free. They devised innovative new services (home or office delivery of convenience-store goods and groceries, online payment schemes, free discussion and consumer rating sites) that lost money but made people happy.

Of course some of the companies floating in the dot-com dead-pool were just stupid. But in many cases, what did these companies do that was so deserving of scorn? They put the interests of their customers first. This may ultimately have been foolish, since in the end they couldn't keep a business alive that way; but it's nothing to sneer at.

Consider the alternative. Consider the sad saga of the CueCat.

The CueCat, you may recall, was a bar-code scanner that a company out of Dallas called Digital Convergence was sending out free to millions of users. You were supposed to plug it into your computer and then point it at bar codes appearing in magazine ads; the bar codes would send your browser to a specific page within the advertiser's Web site.

Apparently the advertisers of the world faced such an insurmountable problem in guiding customers to their Web sites that it would be worth everyone's while to deploy this Rube Goldberg contraption. Or so the thinking went among the captains of industry. Joe Web Surfer just yawned and laughed.

Digital Convergence, in other words, is the opposite of a dot-com: Rather than coming up with a scheme to please the public while forgetting about how to satisfy big-pocket investors with profits, these folks whipped up a project that made boardroom occupants drool with excitement -- but forgot about pleasing their own customers.

As anyone who actually uses the Web could have predicted, the CueCat turned out to be a massive flop, and -- except for a few hackers who figured out how to bend the device to their own ends -- lots of CueCats are now fattening landfills everywhere.

What's interesting about the CueCat fiasco is not that it happened but that large and ostensibly savvy companies chose to invest in the loony scheme. A recent Wall Street Journal article reported some details: Digital Convergence got $37.5 million from Belo Corp. (the media company that owns the Dallas Morning News), $30 million from Radio Shack, $28 million from Young & Rubicam and even $10 million from Coca-Cola. What were the titans of business acumen who lead these blue-chip companies thinking?

According to the Journal article, it was the boardroom sales skills of Digital Convergence CEO and promoter J. Jovan Philyaw that wowed executives and opened their wallets. I've never experienced Mr. Philyaw's pitch myself, but it doesn't take much imagination to picture the scene.

Philyaw doubtless told his listeners that the problem with their Web sites wasn't that they were poorly conceived or designed or that there was little reason for most people to want to visit them -- it was that users couldn't find what they wanted because the Web was just so darn confusing. He didn't say, "You should redesign your Web site to make it easier for people to find what they want"; he said, let's spend a fortune putting bar-code scanners in readers' hands and then require them to register because then we can tell you who they are and where they live.

In other words, Philyaw was able to raise such substantial sums of money because he told his CEO listeners what they wanted to hear. That doesn't make him particularly special in the annals of business, which are filled with follies that appealed to the executive mindset but flopped when they were rejected by the public. But in this post-dot-com-downturn era, it does serve as a healthy reminder that a business model is not the only thing you need to build a company. It helps to have customers, too.

By Scott Rosenberg

Salon co-founder Scott Rosenberg is director of He is the author of "Say Everything" and Dreaming in Code and blogs at

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