Catastrophe Part 1. Dotcom, Bill Clinton and the "new economy"

If you do not do the economy, the economy itself will you

Ten years ago there was the largest disaster in the history of the IT-industry - "the collapse of the dot-com. In March 2000 the index of shares fell computer and Internet companies on the "high tech" stock exchange NASDAQ. Most IT-companies have burst with the American Stock Exchange shares. During 2000-2001, thousands of Internet companies (mainly in the U.S. and Europe) went bankrupt, were liquidated or sold. Many of their executives were convicted of fraud and embezzlement of investors' funds. The majority of new business models focused on Internet technology firms were not viable. IT-industry entered a period of prolonged recession.

Creator packet technology of computer networks Ethernet Robert Metcalfe somehow derived a formula: the usefulness of any network is directly proportional to the square of the number of its users. Metcalfe certainly never guessed that his formula will one day be almost the main cause in 90 years of XX century, the Internet bubble-economy. Entrepreneurs and investors (mainly American) believed in the universality of this formula and rushed to invest in dubious internet projects. The word "internet" like a magic spell opened the door and wallets of venture funds, which allows companies to start-ups to receive substantial funding for the development of IT business.

According to Wikipedia, the word "dot-com" (dotcom, dot-com, dot.com) - "has become synonymous with the name of the company, whose business model is entirely based on the work of the Internet. The most widely used in the late 90's. . In fairness it should be noted that the "dotcom bubble" did a lot of money not only Internet companies, and manufacturers of computer hardware and telecommunications corporations.

In the second half of the 1990 dot-com era of rapid development has been increased public attention to the new opportunities provided by the World Network. This soon led to what has plummeted cost of borrowing and investment capital for any projects related to the Internet. That is what led to the emergence of a huge number of firms, startups (especially in Silicon Valley), which are easily obtained by internet projects a significant investment not only from venture funds, but also from the traditional (and rather conservative) financial institutions.

In the stock market "bubble" was due to take-off of shares of already existing Internet companies, the emergence of many new Internet companies and reorientation "traditional" companies in the Internet business. Shares of companies planned to use the network to generate income, phenomenally soared in price. Numerous commentators and economists to justify this madness, arguing that came the "new economy".

From 1995 till early 2000 Internet startups appeared like mushrooms after rain. Capitalization of such Internet giants like Yahoo or AOL, beat all records. Remarkable fact: the market value of the bankrupt subsequently Nortel Networks then exceeded $ 180 billion and entertainment portal from iMTV eponymous television on the first day of the offering of its shares has attracted more than a billion dollars in investments. Turnovers media empire surpassed turnover is traditionally the strongest in the U.S. automotive industry.

Troublemaking old woman from Ohio and Oklahoma overcame its stockbrokers required urgently to sell bought ten years ago, shares of the local steel factory producing and buy, at least, AOL, or, at worst, Amazon.com. While the general euphoria, few realized that in reality, new business models have been ineffective, and large loans, spent mostly on advertising and corporate life of luxury, will soon lead to a wave of bankruptcies.

The term "new economy" entered into circulation in 1998 with the filing of Bill Clinton, during the presidency of which (1993-2001) and place the events described. The core values in the "new economy" were information and technology. Here are the main provisions of the "new economy":

* The rapid growth of the sector, which involves rapid obsolescence of products;
* Limitations pravoprinuzhdeniya in copyright and patent laws;
* The availability of cheap information security;
* Weak binding of enterprises "new economy" to a particular territory;
* Significant innovation costs (research and product development), combined with modest production costs (copying information, support for online services);
* Cost-effective innovations are often too obvious to be protected (for example - such curiosities as an attempt to register the exclusive right to use the command "Print" and "Copy").

However, it is thanks to the dotcom boom we'll have a great variety of free information and online services. News, newspaper articles and stories in the public domain, freeware-programs, games, payment systems, free mail, and social services - all of this legacy Internet fever in the late 90's.

But even in 1995-97 the majority of content and services of serious (not amateur) resources offered solely for the money. But in 1997-98, the producers of content web unexpectedly became the objects over active investing. Sweeping the business community to fashion on the Internet has led investors to invest more and more millions of dollars in a content company. Their business model included the receipt of future revenues from advertising on Web sites and e-commerce. Competition between the content of projects rapidly deteriorated and they started to offer users free of charge to more information and services.

Economic bubbles like the dotcom boom is certainly harmful for the economy because it leads to non optimal allocation and consumption of resources. A crash that usually follows the economic bubble can destroy a huge amount of capital and cause long-lasting downturn in the economy. Actually, in the IT-industry in 2000-2004, it just happened. And a long period without risk of profits simply extends the period of recession - so it was for much of the world during the Great Depression in the 1930's and 1990's in Japan. And the consequences of a collapse of the bubble not only devastate the national economy, but respond beyond its borders. This is about the current general economic crisis that began with the mortgage crisis in the U.S..

Another aspect of economic bubbles - their interaction with the tradition of funds business. Market participants, assets are revalued, are inclined to live beyond their means, because it feels rich ("wealth effect"). But when the bubble suddenly collapses, the holders of revalued assets feel suddenly impoverished and begin to cut their costs as possible. This, in turn, leads to slower economic growth and deepening of the crisis.

But we all understand now. Wiser. But then, at 90, on television, in newspapers, online media and radio broadcasting a continuous stream of information flowing on that economic and technological developments are certain that the U.S. went out on the "crisis-free" way of development, etc. etc.

March 3, 2000 Prudential Securities Investment Fund analysts published a paper in the beginning of which read: "If you're a shrewd trader, then your portfolio should be present hi-tech stocks, symbolizing the new economy." Few at the time suspected that a few days later an informal capital of Silicon Valley's move from San Jose in Twin Peaks.

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A software perspective

At the beginning of the new year, as in the last few weeks of last year, IT-community, Russia and the CIS countries are actively discussing the short and medium term regional markets. However, most not so much of the software market as the entire software industry in the FSU. Interestingly, the various participants in the debate sometimes come to opposite conclusions.

In 2007, Russia's retail software market grew by 35%. According to experts, the turnover of Russia's software distribution software market in 2007 - m amounted to $ 3.7 billion, the turnover of Russian companies in the world - $ 1.7 billion in 2008 Russia's software market has grown to five billion dollars. To obtain similar figures for the CIS as a whole, is enough to increase Russia's performance in half. The structure of the net sales of packaged software in 2008, according to a study association of independent software developers ISDEF, is as follows: 65% of software sales account for corporate customers, 20% - on the public sector, and only 15% of software products acquired private users. And the progress - a few years ago, private (home) users provide less than 5% of the market - piracy is the norm, though gradually yielding its positions. However, all these figures from experts attitude is ambiguous. So, for example, Famatech CEO Dmitry Kurashev believes that "objectively estimating the actual size of the software market is not easy: the financial information of most IT-companies were not disclosed.

However, the concern of market participants something else. In the very structure of the software market, as well as the reasons for its rapid growth in the past few years laid, as experts say, "mine, ready to detonate at any moment." The fact that the mechanism by which grew sales of software was completely identical to the mechanism of growth of the commodity component of Russia's economy. Head of Sales Department of the company Softline explains these mechanisms as follows: "Growth in sales of licensed software depends on many factors. Of course, one of the key factors are income redistribution from the primary market, ie companies, earning more willing to spend more, including the purchase of licensed software. Now, in times of crisis (and the fall in oil prices), deprived of crazy oil money, private, corporate customers can sharply curtail purchases. And that 65% of the market. It is about 70% of Russian enterprises have taken anti-crisis measures, and many of them, including saving and upgrading the existing IT-infrastructure. Of course, representatives of the software market believe that just to save on software certainly can not. So, CEO of Alawar Entertainment Lyskovsky Alexander (he is chairman of the association ISDEF) said, that "to reduce costs by eliminating the proprietary software - all the same, that is not to save." Well, as CEO of Internet supermarkets Softkey Felix Muchnik sure, "Reducing the cost of IT in the firm - is the same, that the dismissal of a cook in a restaurant. "But not only corporate clients reduce the cost of software - from the private users are not left behind. This indirectly contributes to the fact that in 2008, according to experts, some moved the process of Russia joining the WTO. And with this decreased and the activity of law enforcement in protecting intellectual property, including the fight against piracy. Private users feel more secure that there is a negative impact on sales of software for home PCs. Another trend is even more interesting: as noticed by the experts, private consumers started, where possible, use free software, replacing the expensive commercial programs for-profit counterparts, have a smaller but sufficient functionality. That is to say that the level of technical literacy of the average user is increasing along with its legal awareness.

Summarize all the above. 2008 financial plan was the most successful for software companies in Russia and CIS countries in the history of this market. But by the end of the year the situation was very serious, close to critical. And now companies are seriously thinking about how they survive at all in 2009. About how to implement a huge growth potential of the software market, participants in this market have to think about later. However, the most farsighted begin to act now. Russia Softline company has launched a venture fund volume of $ 20 million fund will invest in small companies engaged in software development. In Softline believe this area is very promising, noting at the same time that the financial crisis is difficult to look for new projects.

For information: company Softline operates in the market since 1993. The main sphere of activity - sales of software. Also Sofline engaged in IT consulting and training. The company's turnover in 2007 amounted to $ 292 million, exceeding three times compared to 2006.

Subsidiary Venture Fund Softline Venture Partners (SVP) is planning to invest in software developers in Russia and CIS. This unit told the head of corporate finance Softline Igor Chekunov. Initially planned to use their own funds, and a total fund intends to invest in start-up to $ 20 million Igor Chekunov said: "The company is considering investing in startups in software development, which have interesting developments in various fields of IT market. We would wanted to make first investment in the first half of 2009. " Softline is now considering the possibility to attract funds from the fund "Russia Venture Company and other investors. The investment in one project is planned at an average of $ 500 thousand - $ 1 million return of the Fund will be at least 35%. However, other market participants are not confident in the success of Softline Venture Partners. Top-manager of one of the largest Russian venture funds, said: "IT start-ups found in the current difficult conditions - is now almost no new projects being created. On the other hand, existing startups poumenshilis appetites - they are ready to negotiate with venture investors for a much more favorable Funds for the conditions. According to the director of venture financing investment company Troika Dialog, Artem YUKHIN, upon availability of funds to invest in IT - one of the best ways to invest money. In turn, investment director of venture fund ABRT Nicholas Mityushin sure that the project venture fund Softline can be successful, as the company invests its own money into the project. Mityushin said: "Investing in good software companies so that they are almost immediately profitable and saves money. Example - a company engaged in virtualization".

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Yandex stop your production of its shares

The biggest Russian search engine and Web portal «Yandex» postponed the primary placement of its shares (IPO) for an indefinite period. First public offering was planned for the third quarter of this year. Now the IPO could take place until May 2009 th, but only if the situation in financial markets will soon stabilize. IPO to be held in the U.S. high-tech NASDAQ stock market in Silicon Valley.

June 20 «Yandex» even opened its own office in California - Yandex Laboratories, - headed by peremanil one of the top managers caught up in crisis Yahoo. Defectors Vish Mahidzhani was previously directed at Yahoo Search, and until then engaged in the same company Inktomi. Before the first half of 2009, Yandex Laboratories should have been a small representation of staff 10-12 staff. The official purpose of opening representative offices (in the version «Yandex») - to support the search quality. According to the guide, «Yandex» became a company of international standing, and it needs to maintain contact with other major players in this market that is easier to do, while next to them - in the United States.


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«Yandex»: the largest Russian-language search engine. Founded in 2000. Owns Internet portal Yandex.ru, a daily audience of more than 5 million people. Owners: more than 30% of the shares owned by funds ru-Net Holdings and Baring Vostok Capital Partners, 15% - Fund Tiger Technologies, about 30% - the founders of the company, and 20% - managers and other minority. Revenues company «Yandex» on the basis of 2007 amounted to $ 167 million, while revenues compared with 2006 grew by approximately 130%. The main source of income that was contextual advertising. The ratio of content and banner advertising in the structure of income «Yandex» for 2007 virtually unchanged.

Nevertheless, the amount of money that «Yandex» will be able to attract, through placement of shares in the West, after the crisis had fallen sharply. If the beginning of the year, known as the sum of $ 5 billion, but now analysts caution: if shareholders want to be able to assess «Yandex» least a $ 3 billion, the IPO should be postponed altogether until 2010. Recently, the Russian business newspaper «Kommersant», with reference to a source close to the shareholders of the company, reported that the IPO «Yandex» certainly not take place this year. The shareholders have decided to postpone the IPO indefinitely due to the global financial crisis. This information confirmed sources in the two investment banks, directly involved in the preparation of exit «Yandex» on the stock market. Quote: «From idea IPO« Yandex »did not refuse, but under the current circumstances it is inappropriate. Earlier, sources in the Investbank reported that shareholders «Yandex» intend to move the IPO for an indefinite period if the situation in the financial markets do not stabilize until October ». According to data from other sources, theoretically share «Yandex» could be held until May 12, 2009-first. Another quote: «The company has the right to hold IPO on NASDAQ during the 135 days since the publication of audited accounts. It can be assumed that the current situation in the markets will last approximately six months, that is «Yandex» theory may hold IPO up to 12 May, 2009 ». However, I must point out that the issue (number and value of the shares placed) «Yandex» has not yet been approved. Moreover, the current instability Amount traditional financial instruments to calculate at all is virtually impossible. I recall that earlier this year mandates for organizing and conducting the IPO «Yandex» were Deutsche Bank, Morgan Stanley and «Renaissance Capital». They are now more affected by the transfer date of IPO. By the way, not so long ago in the online media has passed a message that the prominent Russian businessman, billionaire Alisher Usmanov is negotiating with one of the shareholders to purchase 10% «Yandex».

«Yandex» - is not the first Internet company reshivshaya not hold scheduled for this year's IPO. In July, so did the shareholders Mail.ru, which have experienced occupancy in 2009. Despite this failure is widely razreklamirovannogo loud and propiarennogo entering the stock market, the company continues to grow. 29 September, 2008 «Yandex» summed up the second year of full-scale work for its advertising network (RSYA). During the year, the monthly number of conversions of users participating sites RSYA to sites of advertisers has increased threefold. Every day, more than 10 million users see ads Yandeks.Direkta ad network. A little earlier - September 15 - «Yandex» began construction of a new, sixth on the account, data-center - in Ivanteevke. Its opening is scheduled for late 2008. In Ivanteevsky data-center located more than 7 thousand servers. The area is 2500 m2, summing power - 4 MW. Yandex plans to join Ivanteevsky data-center, with its own Moscow optovolokonnym ring. Finally worth recalling that the company «Yandex» entered the recovery in November 2002, the summer 2003rd Board of Directors decided to pay dividends, the first in runet. In summer 2006, a week-long turnover of placing contextual advertising Yandeks.Direkt exceeded $ 1 million for 2006 revenue and net profit of the company rose more than doubled - to $ 72.6 million and $ 29.9 million, respectively. All accounting «Yandex» since 2000 audiruetsya by Deloitte & Touche.

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The method of Munchausen

The financial crisis forced shake world markets, dramatically changed the behavior of the leading IT-corporations. Those that have only recently boasted popularity of its shares to investors now enjoy the moment and quickly buy up their own podeshevevshie securities. And these actions are not devoid of meaning: in a situation of instability and the lack of interesting investment projects profitable companies to invest in themselves.

Microsoft has announced that it is ready to redeem their shares at U.S. $40 billion over five years (the stand about 17% of securities companies at their current price). In addition, the company increased its quarterly dividend of one share at 18% - up to 13 cents. According to the experts, all this shows that the direction Microsoft wants to return funds to shareholders, lost from the failed deal with Yahoo. Another, much more obvious goal - to increase the value of their assets during the financial crisis. After Announcement of new stock repurchase program analysts Standard & Poor's changed the rating on the shares of Microsoft AAA - the highest rating on the scale of S & P. Over the past 10 years, the company has not received such a rating. According to analysts, the paper software giant rated so highly in connection with the «strong competitive position» company and its «financial conservatism». However, not all start now. Back in 2004, Microsoft announced four years to spend up to $30 billion to purchase its own shares. Later, this amount increased to $40 billion Given the current size of the capitalization of Microsoft, it becomes clear that for $40 billion corporation may skupit approximately 17.4% of its shares. In total, over the past five years, Microsoft by redemption of shares and payment of dividends paid to shareholders of approximately $115 billion, but it now turns out, it was just the beginning. In a press release about the redemption of shares Microsoft Chief Financial Officer Chris Liddell said: «The last of the company demonstrated confidence in the long-term growth and our commitment to return capital to our shareholders». Indeed, before the NASDAQ trading session of September 22, Microsoft shares went up by 4.81% - to $26.37. Note, however, that since a year ago, Microsoft announced its proposal to acquire Internet company Yahoo for $47.5 billion, a software corporation has lost 22% of its value.

The world's largest manufacturer of personal computers - the company Hewlett-Packard - also agreed to add to your portfolio shares. For additional redemption board of directors of Hewlett-Packard has allocated $8 billion This will be the biggest purchase in the company's history. By the way, about $3 billion of that amount left from last year, when the plan for redemption was missed. Apparently, HP at $8 billion could buy 166 million of its shares. According to analysts, the time for redemption chosen well: market value of securities PC manufacturers (all) fell to a minimum.

The example Microsoft and Hewlett-Packard in the last two-three weeks, followed by many residents of Silicon Valley. Specialists attribute: Purchase of treasury shares, the company actually pays dividends to its shareholders. The fact is that in the U.S. buying shares taxed at a lower rate than the payment of dividends. It turns out that it is advantageous to shareholders to sell its corporate securities. Generally same diligence IT-companies to support their stock quotes using the procedure to reverse repurchase (buy back), until recently, determined the stability of the stock market in a crisis. NASDAQ Stock Exchange because more confident and kept others in the «black» days of September that the IT-companies to invest spare cash in shares. Theoretically buy back must show that managers believe the securities of the company undervalued. In fact, the company attempts to raise the stock market on their own are very similar to the actions of Baron Munchausen, vytaskivayuschego themselves from the swamp by the hair. While difficult to say happened or not. Nevertheless, it is reasonable behavior during the crisis. Another case - that the time «after the crisis» could not be less like the crisis itself. Rather, it was then purchased shares previously will gradually return to the market. And here they will meet stiff competition from those IT-companies that have previously expressed the desire to become public (that is to issue its own shares), but postponed the IPO indefinitely.

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IT-company began to repurchase its shares

The financial crisis forced shake world markets, dramatically changed the behavior of the leading IT-corporations. Those that have only recently boasted popularity of its shares to investors now enjoy the moment and quickly buy up their own podeshevevshie securities. And these actions are not devoid of meaning: in a situation of instability and the lack of interesting investment projects profitable companies to invest in themselves.

Microsoft has announced that it is ready to redeem their shares at U.S. $ 40 billion over five years. In addition, the company increased its quarterly dividend of one share at 18%, to 13 cents. According to the experts, all this shows that the direction Microsoft wants to return funds to shareholders, lost from the failed deal with Yahoo. Another, much more clear goal - to increase the value of their assets during the financial crisis.

However, not all start now. Back in 2004, Microsoft announced four years to spend up to $ 30 billion to purchase its own shares. Later, this amount increased to $ 40 billion Given the current size of the capitalization of Microsoft, it becomes clear that for $ 40 billion corporation may skupit approximately 17.4% of its shares. In total, over the past five years, Microsoft by redemption of shares and payment of dividends paid to shareholders of approximately $ 115 billion, but it now turns out, it was just the beginning.

In a press release about the redemption of shares Microsoft Chief Financial Officer Chris Liddell said: "Recent actions demonstrate the company's confidence in long-term growth and our commitment to return capital to our shareholders." Indeed, before the NASDAQ trading session of September 22, Microsoft shares went up by 4.81% - to $ 26.37.

The world's largest manufacturer of personal computers - the company Hewlett-Packard - also agreed to add to your portfolio shares. For additional redemption board of directors of Hewlett-Packard has allocated $ 8 billion This will be the biggest purchase in the company's history. By the way, about $ 3 billion of that amount left from last year, when the plan for redemption was missed.

Apparently, HP at $ 8 billion could buy 166 million of its shares. According to analysts, the time for redemption chosen well: market value of securities PC manufacturers (all) fell to a minimum.

The example Microsoft and Hewlett-Packard in the last two-three weeks, followed by many residents of Silicon Valley. Specialists attribute: Purchase of treasury shares, the company actually pays dividends to its shareholders. The fact is that in the U.S. buying shares taxed at a lower rate than the payment of dividends. It turns out that it is advantageous to shareholders to sell its corporate securities.

Generally same diligence IT-companies to support their stock quotes using the procedure to reverse repurchase (buy back), until recently, determined the stability of the stock market in a crisis. NASDAQ Stock Exchange because more confident and kept others in the "black" days of September that the IT-companies to invest spare cash in shares. Theoretically buy back must show that managers believe the securities of the company undervalued. In fact, the company attempts to raise the stock market on their own are very similar to the actions of Baron Myunhauzena, vytaskivayuschego themselves from the swamp by the hair. While difficult to say happened or not.