1999.AI - by Scott Galloway - Prof G Media

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No Mercy / No Malice Newsletter<br>1999.AI<br>AI and dot-com déjà vu

Scott Galloway<br>Jul 17, 2026

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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 dot-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.<br>Tipping Point

If you were raising capital in 1999, the hero wasn’t a profitable business model, but a suffix: dot-com. The defining philosophy of the era was “get big fast.” Entrepreneurs and investors believed 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 $30m at a valuation of $120m on revenues of $30m (EV/Revenues of 4x) losing $20m. 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 U.S. IPOs were related to internet companies. Pets.com, the poster child of the dot-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.<br>Domino.com

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 “we’re the dot in dot-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 $1.85 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. Along similar lines, DoubleClick was the advertising company of the era, with a $12 billion valuation. But as dot-com startups stopped advertising, its valuation dropped to $800 million, and it was soon taken private. In 2007, Google acquired DoubleClick for $3 billion, demonstrating that (some) technology developed during Web 1.0 was sound, even if the dot-com business models weren’t.<br>Eventually, the falling dominoes hit the infrastructure layer, causing a separate, but related, telecom crash in 2001. At its peak, Nortel Networks carried 75% of North America’s internet traffic. In the summer of 2000, just as the dot-com bubble was bursting, Nortel was valued at $230 billion. A year later more than 90% of its value had been erased. Along with Global Crossing and Lucent Technologies, Nortel had extended vendor financing to the same dot-coms that were now bankrupt. None of the three survived the crash. In retrospect, their downfalls seem obvious, but at the market peak, just as the falling dominoes were moving from B2Cs to B2Bs, 74% of stocks had buy recommendations, up from 60% four years earlier. Hype cycles aren’t just entrepreneurs, i.e., storytellers, getting out over their skis; they’re business models that incentivize consensual hallucination. In unrelated news, Goldman Sachs and Morgan Stanley (lead underwriters for SpaceX) have buy recommendations on the company with price targets of $205 and $300, respectively.

Echoes

The echoes of the dot-com and telecom implosions are deafening. OpenAI’s leaked financials reveal the company lost $21 billion in 2025. A C-suite exodus, the lawsuit from Apple, and reports that OpenAI is considering delaying its IPO until 2027 all feel very 1999. The company’s financials aren’t sustainable — for every dollar subscribers spend on ChatGPT, OpenAI spends nearly three. Its business...