Pets.com, a website dedicated to online sales of pet food and supplies, was the poster child of the burst of the e-commerce bubble. The hype surrounding the potential for e-commerce had reached a fever pitch by the time it held its initial public offering on the Nasdaq Stock Exchange in February 2000. By November, the company had announced it was shutting down.
Hype didn’t match reality.
Were online sales of pet food a good business concept? Had you invested in Amazon.com back in those days, you would have made a great return, but a pet food and supplies site?
Pets.com is often highlighted as a failure and reason to be cautious of bubbles, while Amazon is highlighted as a success. Funnily enough, Amazon was one of the biggest investors of Pets.com and owned 30 per cent of it as of October 2000. Also telling is that in 2017, Chewy.com, a company with a nearly identical concept, became the biggest e-commerce acquisition in history at $3.35 billion.
Was the concept really a failure or did it fail because of inflated expectations, bad business practices and, most importantly, immature technology?
Technology innovations tend to progress through a “hype cycle”, a concept identified by Gartner, a leading information technology research company. It outlines that technologies progress through certain stages to maturity. They begin with hype around the possibilities of a new technology, which leads to inflated short-term expectations. When reality fails to live up to the hype, people get disillusioned and lose faith that the technology can do anything that was claimed.
Over time as the technology gradually improves and people figure out realistic applications for it, expectations slowly rebuild in alignment of what is actually achievable. Eventually, we reach a stage where technology becomes mature, commonly used and can deliver great value in line with the original hype. This is what happened with e-commerce. Today, much of the hype of the late 1990s e-commerce bubble has been fulfilled; it just took much longer than many expected in the days of peak hype.
Blockchain and cryptocurrencies have been riding a tremendous wave of hype. It is rather easy to get caught up in it and put ourselves and our reputation at risk. It is similarly easy to be overly cautious, avoid these technologies and miss out on the potential opportunity. We are still very early in the hype cycle of this new technology, and it will take time for it to improve and for its value-adding applications to be discovered.
Certainly, this hype drove a bubble in cryptocurrencies and many people lost money speculating. Expectations have been vastly overinflated to the point where people were willing to make speculative gambles with no certainty of a return on their investment. One should be incredibly wary when it comes to putting money into such schemes, or risk repeating what happened with pets.com. As the bubble has deflated, many are left now feeling disillusioned as we enter the next stage of the hype cycle.
While popping bubbles deflate expectations, they can also be illuminating. It is worth recognising that what the bubble did show us is that there is a wealth of untapped capital on the planet of people who may struggle to access traditional means of investment. It demonstrated that there is potentially great promise and opportunity in these new technologies. It also provided a great amount of funding and wealth for the development and maturation of this new technology, much like investments made in global fibre-optic cables in the e-commerce boom — investments that were not rational but set the foundation for the internet as we know it today.
Similarly, the hype around cryptocurrencies and blockchain may be vastly overstating what is possible today, but gives us a glimpse of what is possible over the long term.
The prospects for the long term brings us back to Bermuda and what our part can be in all of this. We desperately need a new industry. Reinsurance has transitioned from a fledgeling industry to one of maturity. The years where we had new classes of reinsurers forming year after year have been replaced by consolidations and mergers. The attitudes of having money to burn have shifted to a focus on cutting costs, increasing efficiencies and being more competitive. It is sadly unlikely that we will see a return of substantial job growth in reinsurance.
At the same time, we are heavily burdened with debt, an ageing population, limited resources and incredibly high costs. We are in a very precarious predicament. Simply waiting for reinsurance to return to its former glory isn’t a viable strategy.
To dig ourselves out of the hole that we have dug ourselves into, we need to look back at our history of ingenuity and innovation for inspiration. Catherine Duffy, in her book Held Captive: A History of International Insurance in Bermuda, had this to say of why we were successful in building a dominant presence in the insurance industry.
Bermuda has had to find its own remedies and solutions in the upheavals of the modern world. Instead of squaring off in a conflict of rival vested interests, our government and our international insurance industry have chosen to work together as partners in helping to establish Bermuda as a secure and credible, and reputable and responsive centre for the global insurance industry.
Bermuda has become an incubator for new ideas and has the added benefit of a support system in place that allows these ideas to become realities with the least intrusion by bureaucrats who typically have little or no working knowledge of the complexities of the corporate world.
Another reason for Bermudian success is that we have usually acted with a keen, though proper sense of our own self-interest. We recognise that the insurance industry is our lifeline and we have done everything within our powers to keep out the bad apples because we know that one bad apple can spoil the whole barrel.
As Ms Duffy articulates, our success came largely through partnering with and being guided by industry to create an efficient and effective regulatory environment that encouraged growth. Cementing this point, Ms Duffy quotes Bob Clements, who suggested: “The reason we came to Bermuda was because regulation, as it’s practised in the United States, was an effective impediment to the start-up of a new business.” He added: “The decision to come to Bermuda didn’t have anything to do with income tax.”
The important thing to remember is that we’re still very early in the hype cycle and we have yet to really figure out how to deliver significantly greater value with this new technology. Many attempts at innovating have been focused towards trying to reinvent existing solutions using this new technology or simply to profit from hype.
Hype isn’t valuable and will not deliver results in the long run. The real opportunity and source of true innovation will be discovering solutions that would not be possible without this technology or offer significant efficiency gains over existing solutions. Those are what will deliver the greatest value and long-term results. Those opportunities and innovations are the ones that Bermuda needs to be working hard to incubate.
• Denis Pitcher is a software and technology solutions consultant with an interest in exploring the potential of blockchain and distributed-ledger technologies. He is also tech co-founder and chief architect of resQwest.com, a global tourism technology solutions provider. He can be reached at firstname.lastname@example.org