Although I would never wish it on anybody, bankruptcy is not necessarily a bad thing for society, since on some bizarre level it can serve. The example given in business school was the railroad industry.

Imagine the capital expenditures associated with building the first rail lines and cars. For the sake of this example, let's say it was $1 million for a given region. This says nothing about operating costs associated with selling tickets and running the trains. One can imagine how expensive the first tickets and freight costs had to be in order for the initial investments to generate a return.

Furthermore, like most things starting out, there was probably limited service, which means prospective customers and markets might be initially skipped over. And then there are the issues of overcoming market behaviors and gaining market acceptance, common hurdles with the introduction of most new technologies. Sprinkle in some competitors who start lowering prices in hopes of gaining a greater share of customers (passengers and freight), and we can start to see how bankruptcy comes into play. And, apparently, it did, over and over again.

Now, let's assume that our railroad organization sold assets for fifty cents on the dollar during bankruptcy proceedings. The lines and the cars are still the same as they were when they cost one million, but now their value is half. Which means the new owners do not need the same return on investment the original owners needed, and therefore can lower ticket prices in order to attract more customers.

Now, let's say they went bankrupt and sold the assets again for fifty cents on the dollar. Instead of half a million in assets, the capital number is now down to $250,000, and again the ticket and freight fees fall lower.

Each time this bankruptcy cycle continued, the ticket prices dropped. Ultimately, rail travel got to an investment-ticket price point where it took the nation by storm and became the transportation powerhouse that fueled growth everywhere.

The railroad example suggests that technology will fall/spiral down to the point where it has the maximum advantage for the most amount of people. Similarly, this kind of spiraling has been argued at the national level via capitalism, communism and socialism.

Economists talk about cycles, and depending on who one listens to, the period of time varies from 50 years, 75 years, etc. It was these cycles that Karl Marx and Frederick Engels addressed in their Communist Manifesto (1848).

Basically, Marx said, "...let's do away with the cycles and cut to the chase. Every time we go through one of these economic cycles, great upheaval takes place and some of the rich fall down and join the working class. Ultimately, after enough of these cycles, nobody will be left in the rich upper classes and everybody will be part of the working classes. So, let's save the drama and structure our societies accordingly..."

A noble idea in its pure form. The only Achilles heel in the Manifesto's argument that I can see is that they failed to consider the power of economic rebirth through entrepreneurship.

Bob Metcalfe is a computer legend, one of the those guys that would be cast in a Western movie wearing a much deserved white hat. He is most known for his invention of Ethernet, a protocol that allows electronic data to be transmitted at high speeds, initially at 10 Mbps (mega bits per second), now at 100 Mbps, and 1000 Mbps is on the horizon.

Metcalfe's Law says that the value of a network is equal to the number of end points times the number of end points. In other words, the power of a network is in the number of humex's using the network. I've heard Bob point to the phone as an example. How valuable was the first phone? Who could we call? But, as more and more people aquired phones, the technology/network took on more and more value.

I kind of learned this one the hard way when I first built fifteen plus chat rooms for a tourism site. The site didn't have massive traffic, so it was not uncommon to have someone enter one of these chat rooms and type away, only to find themselves lonely, and then leave. Compounded with the fact that this was an international site, time zone differences and light traffic inspired us to close down the chat rooms in favor of trying threaded discussions as replacements.

One of the reasons why all the above is important loops back to Open Source movement. Freedom and costs. Open Source costs less and provides greater freedom.

Back in 1995, one of the first sites I was involved with cost a bundle to develop and about five grand per month just to maintain the server and bandwidth. Although we had solid press coverage and endorsements from all over, our revenues were not keeping pace with our expenses. As investment monies dried up, it became my responsibility to take over. Lifting server files, databases and CGI scripts from one server and trying to place them on another is a pain, especially if the first server has proprietary elements, which it did.

Today I recommend building sites with maximum freedom and minimum costs. This allows us to turn on a dime and respond in a way in which competitors with high burn rates (overheads) cannot.

For instance, the other day, I came back from attending a seminar held by a competing real estate site. I was totally shocked with how these people where treating Realtors. Their site's focus seemed to be "give them the illusion of ownership and charge as much as we can to display their listings (properties)."

The spirit of their seminar caused me to swell with frustration. Previously, I had thought maybe we could partner, but they clearly showed how they completely forgot, or didn't care about, serving their market by making the lives of clients better.

When one Realtor asked about future guarantees that prices wouldn't continue to increase, they replied, "We are a for-profit business, which means we will have to stay competitive." Therein became my medicine.

Our site does not require loading in 10,000 pictures each week as theirs does. Our overhead is lower and our dynamics superior even though they are formidable with national endorsements, Wall Street money, and a good domain name. So I came up with the idea of an Absolute Performance Guarantee and industry challenge to an e.duel. Our site is not going to promise exposure, hits or qualified leads. We are going all the way and promising results, in this case, real estate closings, or your money back. This should get interesting, so "to be continued." By the way, our site is MovingSoon.com, your fastest e-service to the best Realtors!

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