The majority of companies funded back then were e-commerce plays focused around selling the same items you buy offline for less money and making up the difference with VC money. As a consumer, it was pretty awesome. I remember signing up for AllAdvantage.com in high school (that was a startup that would pay you to view ads, and pay you for referring friends to view ads), installing the toolbar, pocketing about $50, and then uninstalling the toolbar once they crashed & burned and were no longer paying out money. My sister (newly arrived at college) fell in love with Kozmo.com, which would deliver groceries to your door at about 20% under supermarket prices.

The whole thing was a pyramid scheme designed to prop up valuations by incentivizing early adopters with discount prices, subsidized by VC dollars, who would unload the shares on the gullible public markets for higher valuations. The early adopters got some nifty conveniences at bargain basement prices; a few lucky founders & VCs got massively wealthy; most of the unlucky founders & employees wasted about 5 years of their life; and the gullible public lost their life savings.

There's some of that now, but it's much more muted. My wife and I ate very well this summer off delivery startups that were offering FaceBook deals with VC money for prices under supermarkets. However, most of the giant companies this time around actually have solid business models that operate more efficiently than existing incumbents. AirBnB takes advantage of surplus housing capacity. Uber breaks local laws that enforce inefficiency. WhatsApp ran a really lean organization so they could offer text-messaging services at a fraction of the cost of a telecom giant. Instacart charges more than the supermarket, and people pay it. Slack has made office messaging fun. SnapChat at least realizes that its lack of revenue is a major problem, and they're heads-down trying to fix it.

The public markets are not as gullible now as they were then, and so the "unload on the unsuspecting public" strategy doesn't work as well. Companies that are based on nothing but hype & investors dollars often flame out around the C round now; we saw some of that with Secret and Homejoy.

http://www.fastcompany.com/3055033/instacart-raises-fees-and...

It isn't 1999 again, but I wouldn't go so far to assume that "most" of the giant companies are solid businesses just yet. As Buffett said, you don't know who is wearing swim trunks until the tide goes out. Even if companies aren't obviously subsidizing their customers' purchases (as in the first boom), there's a lot of bubble money sloshing around, making everyone's revenue numbers look better.

They have a business model. It just takes capital to spin up new markets. (They run a market at a loss initially, until its mature enough to take profit from.)

What we know from observable evidence is that they're raising tons of money, and funneling it into growth. We also know that there are lots of subsidies, on both sides of the market -- even in San Francisco, the most mature of Uber's markets, I regularly see and hear of driver referral bonuses.

It could well be that without the easy money, the Uber story becomes a lot less compelling. Time will tell.

http://www.businessinsider.com/uber-revenue-rides-drivers-an...

One of the ironic things about Uber is that after they overcome regulatory hurdles in new markets, they make business dramatically easier for their competitors. Taxi service without regulatory capture is a commodity product.

Shit. This is exactly the Indian startup scene at the moment.

Just chiming in with an example of the ridiculousness of ecommerce plays in 1999.

In part because each of those overvalued and overfunded startup were buying Sun servers, Cisco switches, EMC storage, etc. Now they're renting some EC2 instances or whatever. As a result, when the bubble deflates at least a bit, the impact is hopefully largely limited to some VC portfolios, premium developer salaries in some geos, and maybe the income flow for some northern California landlords (or those who paid $2M for a fixer-upper in that area). Not especially pleasant for those involved to be sure, but hopefully not a huge deal for everyone else.

You're right though, "the cloud" is siphoning up a lot of money that would be going to others.

I do wonder how much damage a cloud-everything approach does in start-ups when it goes wrong.

For one thing, I've seen a few early stage stories where businesses seemed to be spending more per month on the fees for the 20+ online services they use than they were spending on hiring good people. They get locked in and dependent, and then their costs are ongoing and scale up with things like head count. A few years ago you might have bought a handful of servers and hired an IT guy to do the same kind of things, and maybe you'd also build-or-buy a small number of software tools for admin purposes.

The usual arguments against that old school approach seem to be that going to the cloud outsources most of the admin work leading to better security/reliability and that it allows better scalability, but I don't really buy either of those as a blanket statement.

In terms of admin, you still have to both identify the cloud services you want to use, in possibly the most hype-driven market I have ever seen, and spend the time to set them up. Those are not small overheads.

In terms of reliability, as we've seen with things like Amazon outages, even relatively well-established businesses who you'd think would know better still don't actually get their resources set up to be properly resilient under pressure, so the idea that you no longer need smart in-house people to run IT just doesn't hold water.

And in terms of scalability, while you certainly can scale almost in real time with some of these services, how many start-ups really need to scale faster than they could rack up some new servers and networking gear of their own with a standard image installed? The downside of paying much higher long-term costs for basic computing and storage resources seems to kick in relatively low with a lot of cloud pricing today.

Obviously there have been some very successful online startups in recent years, both in B2C and B2B spaces, but I do wonder sometimes whether a lot of these XaaS cloud providers are really providing the clear advantages that so many people keep talking about.

Instead, I went into the telecom sector. With a specialty in Sun Microsystems work. Evidently I am awful at being prescient.