The capitalization of the product companies, especially start-ups, has been even more pronounced than that of the Service Provider companies. Money gushing into venture capitalist funds has been re-directed into such companies at an astounding pace. But people don t give venture capital funds money to have it sit in a money market account, so as the money flowed into them, more and more companies have been launched on less and less of a solid foundation. The paragraphs above describe the formation of a bubble, and as we have seen in the past few months, the bubble has started to burst, as a domino effect of economic reality has been initiated. Their problem is that they really haven t been able to define and deliver a set of value-added services that people are willing to pay for.
Most people look to ISPs simply for transport.
Soon, everyone is back to equality and trying to win business by dropping prices. You ve got to have a lot of money in the bank to win a war of attrition like that, and few relatively new companies do, in spite of record private financing. So the ISPs and NSPs experience revenue shortages, which makes it difficult for them to pay their bills. This in turn hurts the systems vendor community both directly and indirectly. As the systems vendors experience a slowdown, this in turn impacts their suppliers optical, semiconductor, and software component suppliers and the domino effect continues.