Speaker 1:

I've already raised already five million for one technology firm.

Reporter:

It's the first anniversary of the dot com crash and the local digerati in Sydney are regrouping.

Speaker 2:

The internet isn't a lifestyle. It isn't an economy. And given these days that it isn't even a prescription for getting rich quick. It's hardly an aphrodisiac.

Reporter:

Just over a year ago, Australia could not get enough of dotcoms. The 30 billion dollar new economy spawned a new generation of wannabe millionaires in their early twenties.

Speaker 3:

If they backed the right ship they would make a lot of money and never have to work again.

Reporter:

Tonight on Four Corners, why so many people believe this boom would never go bust.

April is springtime in Holland, and with it comes high tulip season. It's hard to imagine that four centuries ago just one of these bulbs was worth as much as the best house in Amsterdam.

When the tulip arrived in 16th century Holland, its beauty and variety created an obsession and a market. Speculation in tulips created a boom in blooms, but in 1637, tulips collapsed.

Roger M:

People sold their houses. They sold their manors and their farms to buy one tulip bulb, and they lost the whole lot.

Reporter:

Tulip mania set the pattern for future booms and busts, from the South Sea bubble, to the railways, and the market crash of 1929.

Today the tulip has gone online, but it seems we've learnt very little. Just like tulip, no one really understood the dotcom investment bubble, and almost everyone has lost from it.

So you got stuck in?

Speaker 4:

Yes, in a big way. And unfortunately-

Speaker 5:

We're still in.

Speaker 4:

We're holding, we've reduced holdings.

Speaker 5:

They're longterm investments, they are.

Speaker 4:

They're holds.

Reporter:

Do you know what businesses they do?

Speaker 6:

No, it's ... nothing.

Speaker 7:

Basically nothing [crosstalk].

Speaker 6:

Just sort of whatever happens on the web, I think. I'm not sure, actually.

Speaker 8:

I wasn't very experienced in stocks at that point in time. So I just held on to my stocks and yeah, they just kept going down, and down, and down.

Reporter:

Tokyo. Home to the microchip, outdoor electronic advertising, the world's best internet-active mobiles, and the biggest consumers of luxury goods in the world.

It is also where one of the creators of Australia's dotcom industry can be found these days. His name is Chris O'Hanlon, and he stumbled across the internet in 1993.

Chris O'Hanlon:

I had a very nomadic childhood and here was a medium in which you were literally moving through data all over the world. It seemed to make perfect sense to me, even at the time when it didn't make particularly much sense to anybody else.

Reporter:

The dotcom he created was Spike Networks. Spike's story is a classic tale from inside the bubble. Chris  Hamlin's journey began a long way from Tokyo.

Six years ago in a small house in Sydney's leafy Rose Bay, the seeds of one of Australia's best known dotcoms were sown. The plan was to convince Australia's top companies that they needed websites on the internet, and then to design and build them.

Ruby Blessing was the designer. At the time it was gutsy. Chris and Ruby's first pitch was to auto giant Toyota.

Ruby Blessing:

We went in with a computer, a site that was built, a big screen and said, "This is what the internet looks like."

You click and you want to look at the models. And here's picture of the car, and here's all the specs and features. And here, somebody wants to talk to you. They click here and they can send you an email so there's instant communication within.

Reporter:

Chris and Ruby got the Toyota deal, and they were in business.

Chris O'Hanlon:

To be honest, from the day that we started I saw very quickly that we could grow this into at least a hundred, a hundred fifty million dollar company. I was absolutely clueless about how that was going to happen, but there was a sense that we were on the cusp of something rather important and amazing. And that we, in Australia, were going to be at the centre of it somehow .

Reporter:

The third founder of Spike, Stephen Murphy, was not far behind. He's no busy with his own building project, but his background in sales is just what Chris was after.

Stephen Murphy:

I received a phone call from Chris to meet with him and Ruby in a hotel in Kings Cross where he pitched me the future of the web, but desperately needed a sales force or anybody to create revenue.

Reporter:

Operating out of Ruby's front room, Spike's client list grew. But there were other signs that Chris O'Hanlon was onto something. Already in the US, Netscape, which created the popular web browser, and Amazon, the online book seller, were becoming household names.

So was the stock exchange which listed their shares. Nasdaq trades a range of stocks, but dotcoms would drive the action. Over six years, Nasdaq would sour from 730 billion US dollars to 6 trillion dollars, sending world markets into a frenzy.

But internet fever didn't happen overnight. Back in Australia, one of Spike's first employees was Ben White.

Ben White:

Up until about 1998, we'd been struggling to convince people that the internet was a good thing to get into. We had a very small number of people. I remember quite distinctly, there were a couple of months, suddenly switching the other way were people couldn't get enough of it.

And at that point it because like, capitalism on steroids. It was just unstoppable. We had people, you know, literally banging the door down wanting us to do their sites. Everybody believed that they could actually own a substantial portion of internet. All they had to do was get a page with a bunch of links on it. Why wouldn't everybody in the world go to their page?

Ruby Blessing:

Clients would walk straight in to an open plan office where you can see everybody. And there's stuff everywhere, and there's computers everywhere, and there's phones going off, and there's people doing things. It was really exciting.

Ben White:

It was so cool. They didn't have a phone number, originally. It was like this dark, underground organisation, and you somehow had to find out through the grapevine how to get a job interview there.

Stephen Murphy:

Spike was seen as a culture. We had a phrase, "We're Spike, you're not." And it was said jokingly, but it was taken onboard. Then our competitors did not want to come and pitch against us. They were inhibited by us but never had met us.

Chris O'Hanlon:

The prime culture today among youth is digital. Spike is going to be the News Corp or the Disney of tomorrow.

Reporter:

The most magnetic part of Spike was its quick sotted leader. Volatile and visionary, Chris O'Halon was the son of one of Australia's best known authors, Morris West. Chris' charisma wooed clients and workers in a world of young computer nerds.

Speaker 9:

Chris was one of those original, Australia entrepreneurs. Now I guess the industry has a lot to thank him for. He was the first person to charge a client more than a million dollars to develop a website. You know, he broke a lot of new ground.

Stephen Murphy:

Very creative, very articulate. Exceptionally intelligent. And manic depressant.

Reporter:

Beneath all of Spike's psychology was a more fundamental problem: money. Steven Murphy was under pressure to create sales.

Stephen Murphy:

I used to sit down each month and calculate what the overheads would be. And in the second year it would be over 350 thousand dollars a month. I'd have to find that revenue every single month, by the 28th of the month.

Reporter:

Hungry for new revenue markets, Spike soon outgrew Australia. It was time to go in search of American dollars.

Ben White:

I mean I produced one thing. Mass produced it for the same ... you've got 200 million idiots instead of 20 million idiots, you know?

Reporter:

America was a big market, but one already served by thousands of American web designers all competing for the same business.

Chris O'Hanlon:

One of the big opportunities with California culturenet, is to take California culture to the rest of the world.

Reporter:

Websites were labor-intensive, and costs were high. Spike needed cash. The good news was that dotcoms were now hot property.

By late 1998, investors were only too willing to buy into the action. In December, Australia first dotcom float, LibertyOne, set the pattern. Its shares jumped over 50 percent in the first few weeks of listing. From now on, the main agenda for any dotcom was to float.

Chris O'Hanlon:

I'm not too sure what came first, the chicken or the egg? The notion that we should expand massively, and therefore we need to raise a deal of capital. Or we have an opportunity to raise a deal of capital, what could be the reason for that?

Reporter:

It didn't matter what a dotcom actually did, as long as it sounded sexy. As it happened, Chris O'Hanlon had been pushing a very sexy idea.

Chris O'Hanlon:

The internet is a nation of its own. The natural citizenship is you. We intend to be its national broadcaster.

Kristin Martin:

Hi, I'm Kristin Martin. How you ever wondered where to log onto a live, 24 hour, 7 day a week entertainment and radio network? Well, it's called Spike Radio.

Speaker 10:

Hello, Spike Radio.

Ruby Blessing:

You had to have a story, and it had to be a story that would turn on the market at that moment. And the market didn't care if there was substance behind it or not, really. As long as the due diligence kind of fitted and the projections seemed okay, and seemed to fit with what everybody else was projecting. I don't think anybody wanted to dig any deeper. And, you know ...

Reporter:

Did that worry you?

Ruby Blessing:

A little bit.

Reporter:

By the time Spike floated in July '99, it had morphed into a dotcom conglomerate. The prospectus promised end-to-end strategic internet services, e-commerce solutions, a radio web caster, a Spike cast hosting network, and a portal for hip, young users.

Television:

I mean, I don't know how you can really fake epilepsy or AIDS in order to get pot, but-

Reporter:

Never mind what it meant or that Spike had lost nearly four million dollars in less than a year.

In the fabulous future, Spike would attract customers, advertisers, and money. Spike's float was oversubscribed, almost a third of its shares were floated at $1.45. It valued Chris' holding in Spike at cool $37 million dollars, even though he couldn't sell his shares for two years. They were frozen in escrow.

Chris O'Hanlon:

It was a lot of money. But for me it was really the thing of grabbing the brass ring ... of saying I took it all the way. I took the company from zero to hero. I followed the American arc that defined the success of a web enterprise. We did it, too.

Reporter:

Taz Lipscomb, a young surgeon in Sydney, was a typical Spike investor with little experience. He couldn't get shares in the float, but he bought in as soon as he could.

Taz Lipscomb:

I think Chris O'Hanlon was quite a dynamo. Big media profile. And there's always articles about them, and they're expanding to American with their radio. They were a very well-known web producer, and I'd known that they'd done some big sites. I think they've done Toyota and some of the bigger companies.

Reporter:

How much did you buy?

Taz Lipscomb:

How much did I buy? Four thousand shares at about between $1.50 and $1.60.

Reporter:

And what are they now?

Taz Lipscomb:

I don't look at them now. I think last time I looked they were 30 cents. It's not really a nice thing to do, so I try to avoid look at the price of Spike shares at the moment.

Reporter:

They're half that now.

Taz Lipscomb:

Okay. Fifteen cents? Bargain, why don't you buy some?

Roger M:

Who's holding onto a stock at the moment waiting for it to go to the price they paid so that they can get out? Show of hands? Everyone, come on, be honest.

Reporter:

Fund manager Roger Montgomery teaches investment strategy to market novices. His message? Dotcoms fail the fundamental test of sound investment: that the price of a company's shares should reflect the income it earns, the price-earnings ratio.

Roger M:

If you're going to buy a business, you will pay multiple for that business. Now what multiple of the earnings should you pay? Seven times? Ten times? If you pay ten times the earnings of the business, it suggests that at the current rate of earnings, it'll take ten years for you to get paid back for your investment using the earnings.

Reporter:

The problem was that dotcoms had little or no earnings.

Roger M:

Now, the internet stocks we're trading at multiples of 400 times, and 500 times, and even more. And analysts were coming saying this time is different. This time is not the same as before. These prices are justified, and the reason these prices are justified is because it's a new economic era. It's a new era of prosperity. This is going to change the face of the world.

Television:

The new, new economy won't be like the old new economy. The new-

Reporter:

The new economy promised a revolution in efficiency. The internet would deliver products and services at a fraction of the old costs. It followed that any shares in the new economy space could not fail to go up.

Even shares in Spike, with negative earnings, where the PE ratio was meaningless. By December 2000, Amazon was worth 20 times more than Barnes and Noble, the largest bookstore in the US.

Roger M:

The analysts were saying, "Well, how can we justify these prices?" We need to put out a research report on this because lots of people want to invest in it, but how do we justify ridiculous PEs, price-earnings ratios of 400 times. That's tantamount to waiting 400 years at the current rate of earnings to be paid back for investment. How can we justify that? We'll have to use some new ratios.

Speaker 9:

The metrics that people were using when they didn't have earnings to rely on were things like revenue, or number of customers, or number of pages that a website was actually serving up. So businesses were being valued on how many pages of content were being looked at on the web.

Reporter:

Even though those pages were probably free?

Speaker 9:

They were almost certainly for free and there was no relationship between pages and visitors, and visitors and customers, and customers and purchases, and purchases and margin.

Television:

For miles around the Poseidon leases, companies and individuals have paved other claims in the hope that the line of the [inaudible] will head their way.

Reporter:

It's no coincidence that some of the specious dotcoms came from the nation's speculative heartland, the west.

Back in the '70s, Australia had its very own mining boom and bust. Shares in Poseidon soared from 75 cents to 280 dollars and back again.

Analyst Tim Knapton says that the game for tiny mining companies was back door listing. Just add dotcom to your name, and cash in on the gloat frenzy.

Tim Knapton:

I guess a lot of us were invited to plush CBD boardrooms to see these mining companies promote their new electronic wares. And invariably there would be the refaisant-faced, advanced waistline, resplendent silk-tied mining veterans who, of course, were only too capable extolling the virtues of the boom at large.

But invariably when the questions became more specific, they would defer to an individual ... almost in the shadows who invariably was thinner, more pallid, and much more young ... who would be their IT geek.

Reporter:

Just so how many of these spec mining companies did convert?

Tim Knapton:

Gosh, close to a hundred?

Reporter:

Just how the more dubious dotcoms were allowed to float is a very touchy issue for the stock exchange.

In 1998, the ASX became a public company in its own right. Its critics point to a conflict between its role as market supervisor and it's number one priority ... to earn profits from listing and trading.

In the year the boom peaked, new listings more than doubled, and ASX profits rose 60 percent.

Speaker 9:

The regulators in Australia at one stage appeared to have been really bullied into making it easier for businesses to list on the Australian Stock Exchange. Because it was a very real fear that if they Australia Stock Exchange could not accommodate these businesses, they would all go to the US and list on Nasdaq.

Reporter:

Australian listing rules were relaxed. Companies no longer need hard assets, provided they can raise five million dollars in a float. Not too hard in a boom market.

The stock exchanged declined to appear on Four Corners, but in a written statement denied any conflict of interest, adding, "Were ASK not to have allowed smaller companies to list, capital raising in Australia would have been confined only to larger companies. That would mean that innovative Australia companies would be denied capital and forced off-shore."

Roger M:

Just because-

Reporter:

Roger Montgomery believes Nasdaq has been much more lenient than the ASX.

Roger M:

During ... I think it was late 1999 ... NetJ.com listed on the Nasdaq. And NetJ.com in its securities and exchange commissions finding said, "NetJ.com conducts no business activity of any description. NetJ.com has no plans of conducting any business activity of any description."

But let me say this. During the boom, a lot of people bought that stock at a dollar. On its first day of listing, it listed at $3.50. Shortly after went to $7.50 ... 750 percent increase in price, or 650 percent profit, and there's no business.

Reporter:

NetJ.com is now trading at 20 cents.

Australia had its own share of irrational exuberance. The country was raining cash in a climate of economic sunshine. The market hype infected professionals and punters alike.

Taz Lipscomb:

You'd go to a pub, and you'd hear people talking about over there. You'd go and walk down the street, they're be people talking about shares, and internet, and the boom.

I felt like I didn't want to miss out. And I didn't deserve to miss out and that I would do it for myself to make sure I didn't miss out. It was a lot of almost, not peer, but social peer pressure that if you weren't in on this, you were a fool. You know, there was money to be made and if you didn't come in on this, you lost your chance. You were just a fool. And I didn't want to be a fool.

Reporter:

On the broking floor, share trading was in overdrive. Small investors were on the phone, and as those on the market say, "Where the ducks are quacking, there's a moral obligation to feed them."

Speaker 11:

Phone calls were becoming, more or less, "Why aren't I making this money? Everybody else seems to be making it. It seems to be so easy to make. What is going on here?"

Occasionally, it was difficult to keep the client's feet on the ground and say, "Well, look. There are a number of things you really shouldn't be doing here. And by the way, this 100 thousand dollars that you're popping in ten different names, how much of your portfolio is this? How much of the assets is this?"

"Oh, it's 100 percent! I've just started to get into the market. This is all going so well!"

Roger M:

The whole investment premise for internet stocks was pay through the nose for the stock, and don't worry about it because there'll be a bigger idiot than you who will actually pay a higher price for it later on.

Reporter:

In April '99, one bank report from Meryl Lynch actually did advise investors that dotcoms were worth paying through the nose for.

And punters did just that, especially when news surfaced that a tycoon was sniffing around a dotcom.

Tim Knapton:

Well, the grapevine became very effective. In fact, overly effective. You know, just about every company ... every one of those 250 or so companies was speculated to be the next Packer or Murdoch takeover [inaudible]. And of course that was never going to be the case.

Reporter:

But even the bigger players were forced to move online for fear that they might miss the next thing, or worse ... be taken over by an arrogant startup. For those like bankers, lawyers, and accountants servicing the boom, it was a money tree, and one full of conflicts.

Speaker 11:

When it's booming, everybody wants to be involved. You're underwriting side, your corporate side, your private client side, your institutional side ... they all want to be part of the action. And the pressure does mount from within to be successful and to be part of it.

And one has to be extremely careful that the screening process of what we're doing with regard to floats is still as strong in the boom times as it should have been, and it is, when we're not so busy.

Reporter:

In the ultimate self-serving twist, the new economy created broking online. Punters could now trade unassisted and unguided for as little as 15 bucks a trade.

The gossip of internet chat rooms, almost impossible to regulate, replaced the advice of the traditional broker.

But the most powerful stock rampers were the dotcoms themselves. With every new event or idea came a press release.

In the 12 months following the float, Spike had no less than 37 releases through the stock exchange.

Tim Knapton:

The regulator really, I guess was taken by surprise as much as the rest of us because these companies were profusive in their announcements and prolific in their deals. It was very hard to track as analyst, regulator, or investor, frankly.

Chris O'Hanlon:

We make information more accessible and understandable-

Reporter:

Chris O'Hanlon could talk the talk, and he readily admits using the media.

Chris O'Hanlon:

Sure, and let's not forget it was a symbiotic relationship. They needed someone like me to add credibility to their home industry. And you know, I was great. I was that sort of that American Steve Jobs-like mouth who really didn't care what he said.

Ben White:

We had people like [Beasley] and [Alston] walking through the office wanting to be part of this sexy new thing, and Chris was the poster boy for Spike.

Reporter:

Along with the hype came the money. Dotcom staff were paid with options to buy shares cheaply in the future. When the shares went up, they became paper millionaires. Suddenly, employees were behaving like investors.

Ben White:

Look, the thing about Spike is that it's a vignette of greed, if you like. Everybody was being greedy, you know? People bought the shares to make more money. People floated to make more money. People left jobs for other jobs to make more money.

Reporter:

All this money came from investors and it was disappearing fast. In the second half of '99, Spike spent 20 million dollars but earned only seven.

Speaker 3:

Well they were burning ... which is the different between your revenue and your expenses ... 650 thousand dollars a month, US.

Reporter:

That's a huge amount, isn't it?

Speaker 3:

It's lot of money, yeah. Yeah.

Nelson Mandela:

This world will eventually be what we want it to be.

Reporter:

Spike wasn't the only big spender. Another Australia dotcom, ISIS communications, spent five million dollars sponsoring World Reconciliation Day, staring Nelson Mandela.

Television:

Where can you find your dream job? Hotjobs.com. Thousands of hot jobs at large companies like Yahoo!, Ebay, and Oracle-

Reporter:

And in the US, dotcoms paid two million US dollars for 30 seconds of advertising at the Super Bowl.

Spike's most famous splurge was it's coming out party for Spike Radio in Los Angeles. It cost a reported 260 thousand US dollars.

Speaker 9:

You really did break new ground in terms of Australia dotcoms having launch parties. There's never been a bigger one than that.

Chris O'Hanlon:

That's at once very sweet and very bitchy. It's interesting. In fact, the truth of the matter is, there had been several parties like that by web companies.

Reporter:

It wasn't about Chris becoming part of the digerati.

Chris O'Hanlon:

No, I was already part of the digerati. I mean, let's ... at least I can arrogantly assert that. I was already there.

Reporter:

By December '99, cash burn was so serious that the stock exchange demanded quarterly cash flow statements from all dotcoms. But by then, the rot had set in.

The rosy predictions of sales on the net and advertising were failing. At Spike Radio, no one was listening.

Chris O'Hanlon:

Certainly we're talking in tens of thousands rather than millions ... which, let's say the amount of people that a niche radio station in say, Chicago or Baltimore is getting.

Reporter:

So you're saying tens of thousands at any one time or over a month?

Chris O'Hanlon:

Over a period of a week or so. In terms of simultaneous listeners, between two and five thousand.

Speaker 10:

Hello, Spike radio.

Reporter:

According to some ex-Spikers, there were as few as 50. In any event, the audience wasn't big enough to be counted in industry polls.

But Spike was burning people as well as cash. Ben, Steven, and Ruby all left the company.

Ben White:

I thought Spike really was a dumb idea, to be honest. I knew it was a dumb idea, and that's how I left.

Stephen Murphy:

After four and a half, five years of giving my soul and blood, I decided that was enough. So I resigned.

Ruby Blessing:

I got sick of fighting for some reality checks. And if that makes me sound kind of boring and old fashioned ... which I think it did at the time. It was like, "Oh geez, Ruby. Lighten up."

Reporter:

But the market was still a long way from reality. The media was one of the worst culprits, hyping a new economy for the new millennium.

Around the world, punters queued for a piece of the action. In Hong Kong, Tom.com was 669 times oversubscribed.

Mania peaked in Australia when dotcom finance angel TiNSHED called for 60 second pitches from would-be dotcomers, the so-called elevator pitch.

Speaker 9:

The idea is that if you can buttonhole someone for only one minute, could you actually get the idea across enough for them to say I'll give you a million bucks.

Reporter:

By February 2000, Australia new economy industry was worth over 30 billion dollars. Spike's shares, which started at $1.45, peaked at $3.80.

Taz Lipscomb:

Why didn't I sell them? I thought, they're going up. This is fantastic. They'll probably go further. Everything's good. Maybe rather than having 10, 11, or 12 thousand, maybe I can get 15 thousand dollars for these. I'll just wait and see.

Reporter:

The wait cost Taz his investment. Around the Ides of March last year, Nasdaq stumbled, losing nine percent in a few days.

On the 14th of April, it plunged another 10 percent.

Speaker 9:

I couldn't believe the numbers we were seeing. I turned on the TV, had to look at the CNBC or Bloomberg or whatever it was, and I think there was red ink everywhere.

Reporter:

On April Crash Day, shares in Australia's dotcoms plummeted. Spike was one of the worst, losing half of its value in one day.

Roger M:

Unfortunately, the forces of fear are much greater and work much more effectively on people's investing activity than the forces of greed. Greed takes some time to disseminate and take hold, but fear is, "Just get me out now." And everybody runs to the door at the same time.

Reporter:

The press was even louder on the way down. Dot bombs, dot gone, and dot con. Questions were asked about whether brokers, who make money trading booms or busts, were profiteering by recommending buys as the market fell.

Speaker 11:

I think profiteering is a very, very strong word. I think inexperienced in terms of what happens when a blow off occurs and the sell down starts is probably closer to the facts than any malpractice, certainly.

Reporter:

A year on, dotcom hopefuls are still hitting the streets. So who were the losers? Well, major companies spooked into big investments by the dotcom threat and those in the high tech funds created to milk the boom took some pain.

But worst hit were average punters, many who invested in the last two months, at the height of the market.

Taz Lipscomb:

The name Spike ... if you think about it. Spike is a sharp up and a sharp down. So that was the story of my Spike experience. Very metaphorical.

Chris O'Hanlon:

I wonder how many people really did get hurt. I think there were probably some, but let's remember, so did I. I lost 100 million dollars.

Reporter:

You say you lost 100 million, but you didn't come in at the top.

Chris O'Hanlon:

No, that's true. That's true. But, you know, in a sense I came in somewhere a lot harder. I had to build the company from scratch.

Reporter:

What seems incomprehensible is how forecasts of revenue and spending could have been so wrong.

Chris O'Hanlon:

Spike is going to be the News Corp or the Disney of tomorrow.

Reporter:

For the year to September 2000, Spike lost over 26 million dollars in the US ... 20 million more than the prospectus said it would.

Stephen Murphy:

Our forecasts were optimistic, not pessimistic. We had succeeded in every challenge put to date. Why wouldn't we continue in having optimistic forecast results? With hindsight, maybe they should have been pessimistic.

Reporter:

The Australia Security and Investments Commission has tightened its rules to make forecasts more conservative. But it took until February of this year to make the change.

Speaker 13:

Well, it's true. I think that had the current approach to forward-looking financial information been in place, there may have been less issues go to market.

Now, that would have raised a different series of issues because in a boom, people get very upset when they're not allowed to invest.

Reporter:

The regulator is concerned about false and misleading statements in prospectuses, and threatens to refer some dotcoms to the Director of Public Prosecutions.

Speaker 13:

I would be surprised if there are not at least a few cases that are referred. Whether they lead to the laying of charges, of course, would then be a matter for the DPP.

Reporter:

Beyond the prospectus, there is a much bigger issue. How dotcom founders running public companies with no business experience were allowed to get so out of control.

Chris O'Hanlon:

I, in many ways, became a very, very difficult to begin with because there was this conflict on one side. There was this public company that was, at that time, highly successful. And on the other side, there was, for me, a sense that I had betrayed some collective dreams. And it drove me very much inside myself. And you know, I arrived in a place where it was very difficult to emerge in a kind of sane way, so ...

Reporter:

The board sacked Chris O'Hanlon over the crash weekend in April. He had never made any secret of his manic depression, but there was clearly extravagance and a claim of sexual harassment, which he strongly denied.

According to Chris, Spike's directors should take some of the rap for the excesses.

Chris O'Hanlon:

One felt that at the time one was getting the right advice, and that one was trying to make the right decision. Which doesn't abrogate my responsibility to the CEO, but this wasn't like me saying, "Hey, let's spend more money here, let's spend more money there."

Reporter:

It's clear that many dotcom directors never understood their duty to shareholders. Some should have wound up their dotcoms before the money ran out. But the regulator dismisses calls to raise the bar for directors.

Speaker 13:

We've had this debate many times in Australia, and no government has decided to go down that track.

And often what happens is that we go through booms ... people are in favour of light regulatory touches of prospering economies. Very understandable. But of course when things downturn and people lose money, everybody's looking for someone to blame.

Reporter:

Dotcom collapses are now weekly events. In fact, one of the global industry's most popular these days is a US underground gossip site that charts the failures.

Chris O'Hanlon:

I actually love it. I say that despite having, I think, several pages devoted to some of my lesser-known vices and traits. But, it's fair to say that nearly everything that's on there is accurate to a degree. Almost uncomfortably ... well, absolutely uncomfortably so.

Reporter:

And so does Spike deserve a place on Fuckedcompany.com?

Tim Knapton:

Well it's certainly in the kennel in terms of being a performance dog. It reached the market cap, at the top of my head, of something like 160 million back in the halcyon days of February last year. And it's now down to less than 5 percent of that. So a lot of very disappointed investors, yes.

Reporter:

It wasn't just investors that lost out. Dotcom employees go their marching orders and boom parties turned into pink slip parties. In the US, at least 50 thousand lost their jobs. When the crunch came, Spike's LA office was downsized from 60 to 12.

Speaker 3:

I mean it was anger. Nothing short of anger. I would have, on a couple of occasions I had people shouting at me, telling me I didn't understand. And so, I mean ... It was because their expectations had been dashed. They thought that by getting into this business, they could become incredibly wealthy, incredibly quickly. And never work again.

It was always that sort of talk. Never work again.

Reporter:

So far, Spike is a survivor. It has sold down part of its stake in Spike Radio and is back where it started: web design and consultancy ... With a new CEO.

Speaker 14:

Reflect upon it. Rationalisation has struck. We have survived the tech wreckage. We're standing tall. We have good commercial backing. And we still have at the heart of ourselves our traditional core competencies. I see that as a pretty good mix ... pretty good chemistry ... for success going forward.

Reporter:

Like Spike, the rest of the local digerati are licking their wounds.

Speaker 15:

I would say upbeat, but I'm fairly balanced.

Reporter:

One year after the crash, this anniversary breakfast is oversubscribed. Just like the floats that were going to make them millionaires. But most now work in traditional companies that are swallowing dotcoms or growing their own net businesses.

The new mantra is ... Clicks and bricks, dotcoms merging with blue chips. Last year in Australia, two billion dollars worth of goods and services were bought over the net. True believers say they'll be back.

As for the dotcom punters, many of them didn't even read prospectuses. Those that took the tip from the cabbie last year have only themselves to blame.

Speaker 4:

If I'd known now, what I ... you know, two years ago. I'd have lots of money now.

Speaker 5:

We wouldn't have lost out with dotcoms.

Speaker 4:

Yeah, we lost so much there.

Reporter:

Now small investors are looking for better ways to manage their money. But if history is any guide, this won't be the last boom and bust.

Roger M:

It's happened before. It will continue to happen. And people will make the same mistakes that they've made in the past.

Stephen Murphy:

Where do you want to go today Charley?

I lost a lot of money on the internet. I still ... like Ruby. My shares are held in escrow. I wouldn't a new tyre, I think, with the number of shares I have in the cart.

Reporter:

There's no love lost between the three founders of Spike. The original deal gave Chris most of the shares. But it's symbolic that all three see their future in web design. The industry survives, if somewhat more modestly than predicted.

Tim Knapton:

That's what we're seeing in previous booms ... whether it's radio, or railroad, or TV, or even the tulip boom or whatever. The companies, the handful that survive, turn into big conglomerates. And those that are lucky enough to pick those stocks do very well over many, many years.

Reporter:

Four hundred years after tulip-mania, tulips are still thriving in Holland. The Dutch dominance of the world industry is the legacy of their crazy boom. The dotcom believers say their industry is now taking root.

A tulip, by any of name.