• by Tig Tillinghast , June 21, 2002

For those of you out there who missed the heady days of unlimited venture capital funding, you missed more than just a roller coaster ride of ephemeral paper wealth. You also missed a fad-based culture, where certain business models gained sudden primacy – if only for a few months. And the sudden fading of these models can be deceiving.

The media model had a relatively long heyday, spawning countless Web companies that all sported business plans heavily reliant on moneys coming – somehow – from advertising. Some of these companies had some real prospects, but the obvious stinkers among them eventually tarnished the ad business model.

Mid-level managers at all these companies would have been shocked to see how much senior management rearranged their priorities and business direction based on their perception of what the venture capital community believed was the “cool” model of the day. These senior managers’ primary concern was getting the next round of financing.

I don’t think we can be faulted for this sense of priorities, either, because the business environment forced us to do it. When competitors are giving away their products and services, it disallows a strategy of working off of cash flow, and forces the business to be very reliant on the whims of the financing community. Good businesses – ones with real prospects of profitability – were forced to play the Internet game of profitless growth because their markets were polluted and skewed by the competition’s give-aways.

When I worked for Internet Profiles, which later became part of Engage, I helped the company through three or four rounds of financing. Each time we started out, we first took the temperature of the VC’s. I can remember when we were promoting a media automation tool called Dispatch (later sold to Solbright), I once referred to the product as a “workflow automation tool.” The CEO took me aside afterward and warned me to avoid the term, telling me that the VC’s went through a bubble of workflow tools some years back, and they all got stung.

Over the course of two years, we repositioned what were essentially the very same services and products as media tools, consulting services, proprietary information publishing and IT solutions – all depending on what the financiers wanted to hear at the moment.

The reason this becomes important today is because the trend of moving away from advertising models is one of these necessary-but-misleading feints. When Engage moved away from media and tried to convince people it was a technology company, its prospects for enormous growth plummeted, yet its stock made a temporary recovery. Unfortunately, since it sold of many of its useful media assets, Engage will likely never recover those heady prospects.

That DoubleClick is currently trying to tell anyone who will listen that it, too, is a technology solutions company, instead of a media company, is sort of like a Nobel scientist saying that she can sweep floors. Sure, she can sweep floors, but her real value comes from an expertise that can be applied only in certain economic conditions.

Don’t be fooled by the movement away from media. The VC’s still aren’t making much money, and the IT solutions business model is looking long in the tooth.