Web Dev Price Arbitrage

In the mid-1990s, James Altucher discovered an arbitrage opportunity in early web development by leveraging corporate relationships and markup pricing. Here's how it worked:

The Business Model

• Corporations would contact big consulting firms (like Arthur Andersen) for website development
• Consulting firms would charge around $1 million for website projects
• These firms would subcontract to software companies
• Software companies would then subcontract to James and his brother-in-law
• They would build the site for $250,000
• Everyone in the chain made money due to corporate willingness to pay premium prices

Notable Clients & Projects

• Major Entertainment Companies:

  • HBO (first project, while employed there for $40k/year)
  • Warner Brothers
  • Sony
  • Disney
  • BMG

• Record Labels:

  • Bad Boy
  • Loud Records
  • Jive
  • Death Row
  • Interscope

• Notable Projects:

  • American Express website
  • The Matrix movie website
  • HBO.com

Website Characteristics (Mid-90s)

• Heavy design elements:
  • Large images
  • Flash animations
  • Macro-based animations
• Not very user-friendly
• Less functional than modern websites
• Difficult navigation
• Considered impressive for the time period

Exit Strategy

• Sold company to a larger firm that was "rolling up" web agencies
• Received ~$15-16 million in cash (not stock)
• Timed exit perfectly at market peak in 1999
• Avoided the dot-com crash by taking cash instead of stock options