No Mercy / No Malice: 1999.AI

**SPEAKER_1** (0:00)
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**SPEAKER_2** (0:03)
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**SPEAKER_3** (0:26)
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**SPEAKER_4** (0:28)
Oh, thanks, Jane.

**Scott Galloway** (0:29)
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**SPEAKER_4** (0:58)
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**Scott Galloway** (1:24)
I'm Scott Galloway and this is No Mercy, No Malice. When the.com bubble burst, the contagion began with B2C, then spread to B2B, and ultimately hit infrastructure. A similar pattern is forming in AI with cracks emerging at OpenAI.
1999AI as read by George Hahn.

**Scott Galloway** (1:56)
Jamie Dimon once defined a financial crisis as something that happens every five to seven years. Well, it's been 18 years since the last crisis. As you age, cycles become more visible. You've seen this movie before and begin to recognize the moment as a point on a curved line. Slowly, then suddenly, the line changes direction, for better or worse. Recently, echoes of 1999, i.e. peak.com, have been growing louder. I believe we're witnessing the initial stages of the unraveling of the AI bubble. But unlike in 1999, we could be in for a twist ending.
If you were raising capital in 1999, the hero wasn't a profitable business model, but a suffix, .com. The defining philosophy of the era was, get big fast. Entrepreneurs and investors believe the internet represented a once in a generation opportunity to capture margin and market share. By 1999, 39% of all venture capital investments were being deployed into internet companies. My firm, Red Envelope, raised $30 million at a valuation of $120 million on revenues of $30 million, losing $20 million.
Most profitable specialty retailers were trading between.8x and 1.2x revenues. Spoiler alert, the markets did eventually show up and inform me this made no sense. That same year, 80% of USIPOs were related to internet companies. pets.com, the poster child of the.com bubble, had the correct thesis. Consumers would buy pet food and supplies online, but the company was a decade early. See Chewy, founded in 2011
Like many B2C internet startups, pets.com incurred net operating losses, but spent heavily on advertising in the run-up to its IPO. In 1999, the pets.com sock puppet mascot was so popular, it was a balloon in the Macy's Thanksgiving Day Parade. A few months later, pets.com was one of 17 internet companies to buy Super Bowl ads, up from two in 1998 The following month, the company went public, raising $82.5 million. In less than a year, however, pets.com declared bankruptcy and shuttered operations. Similar fates befell Webvan, an early iteration of online grocery delivery, etoys.com, once considered a brick-and-mortar toy store killer, and hundreds of other B2C startups. The first dominoes to fall were B2C firms, as their business models relied on consumers ready to buy dog food via dial-up modem. The fallout took longer to reach B2Bs, as enterprise companies have longer sales cycles and stickier customers. Sun Microsystems, whose tagline was wearethedotin.com, powered B2C startups. At its 2000 peak, Sun was valued at $205 billion, nearly as much as General Electric at the time. But as its Internet clients went bankrupt, the business collapsed. Sun reported net income of $1.8 billion in 2000, but that number halved to $927 million in 2001 Sun lost $628 million in 2002 and $2.4 billion the following year. From peak to trough, the company shed 96% of its market cap. It was eventually acquired by Oracle for $7.4 billion in 2009