Crash Dot Com Part 1: A World Gone Mad

By Shamus Posted Thursday Nov 10, 2016

Filed under: Personal 56 comments

The year is 1998, and the world has gone mad.

I’m caught in the middle of it all, but at this point in my life I’m not really equipped to detect the crazy. I’m 27 years old. I got married last year, and our first child – our daughter Rachel – was born this year. I’m young, I’m working hard, and I have no idea what I’m doing. I’m so wrapped up in the changes in my own life that I don’t really notice how mad the world is.

It’s a communal kind of madness. Individually, people are as sane as they’ve ever beenWhich probably isn’t saying much.. But we’re in a period of rapid technological and cultural change. Everyone wants to stay ahead of the game and nobody knows what’s going to happen next. It’s only been five years since the Mosaic browser hit the net and kicked off the web as we know it today. Since then the internet has exploded in popularity.

Obviously this chart is out-of-date. (It ends in 2005.) But you get the idea. I wish there was a sequel. I'd love to see the smartphone adoption curve.
Obviously this chart is out-of-date. (It ends in 2005.) But you get the idea. I wish there was a sequel. I'd love to see the smartphone adoption curve.

If you put the various consumer technologies of the 20th century on a graph, you can see the growth curve of the internet is steeper than the growth of household computers. That is, it’s going to take the internet even less time to go from “nobody has heard of it” to “everyone has two” levels of saturation. And the growth curve of computers was already steeper than the growth of automobiles and electricity, and both of those grew faster than the telephone. Not only is the world changing, the rate at which it’s changing is increasing.

If you’re an investor, then this is panic-inducing. If you’d dropped just $2,100 into Microsoft when it went public in 1986, then today in 1998 that stock would be worth over one million dollars.

Twelve years. A growth of 47,619%. The mind boggles.

We’re Going to be Rich!

Remember the #1 secret to success: Be in the right place at the right time. Afterward, you can write a book about how you got rich by being in the right place at the right time.
Remember the #1 secret to success: Be in the right place at the right time. Afterward, you can write a book about how you got rich by being in the right place at the right time.

Over the last century, we’d seen the growth of radio, television, electricity, microwaves, VCR’s, and countless other technologies. Again and again, the story repeats: The people who got in on the ground floor of a new technology became wealthy, powerful, and respected. They became famous. They created jobs. They got their faces on magazines. They had buildings named after themselves. That kind of lifelong payoff makes a winning lottery ticket look like a Crackerjack prize.

Not every new technology leads to fame and riches, of course. The Walkman came out in 1979. But that was made by Sony, and they were already a huge company at the time. It was too late to “get in on the ground floor” of Sony. So if you’re looking to be the next mogul then you’re not just looking for a new gadget, but a new gadget from a new company in a new industry.

This is the kind of thing that keeps investors up at night. They’re afraid of missing out. Afraid of being the doofus that throws the next Bill Gates out of his office and passes on a chance to be part of history. Afraid of their entire career being reduced to a cautionary tale.

The year is 1998, and this is the moment where it became obvious that this whole internet thing isn’t a fad. All you have to do is put the numbers into your spreadsheet and you can see the Matterhorn-shaped growth curve for yourself. This is it. This is the Next Big Thing. History is about to mint the next Henry Ford. Assuming it’s not you, then you need to find him and hitch your wagon to his star. If you’re an investor, this means you need to bankroll him.

The problem with this line of thinking isn’t that it’s wrong. The problem is that it’s obvious. Everyone is coming to this same conclusion at the same time. Making things worse is that everyone knows that everyone knows. So if you want to get in on this thing, then you need to do it as soon as possible. It’s a gold rush. You don’t have the luxury of scouting around for the best opportunity, because while you’re window shopping, everyone else is staking their claim. If you wait around for just the right deal, then the whole thing will pass you by. This sense of urgency is leading investors to put their money into unwise ventures.

How it’s supposed to work

This is from a recent re-make / reboot of The Odd Couple. I hadn't heard about it, so I'm going to assume it was terrible.
This is from a recent re-make / reboot of The Odd Couple. I hadn't heard about it, so I'm going to assume it was terrible.

A business venture will usually start with a couple of people. Maybe they invent something, or they see a service that nobody else is providing. But while they see an opportunity, they can’t make it happen on their own because they don’t personally have the cash to acquire the people and equipment they need.

While startups come in all shapes and sizes, the stereotype is that you end up with two 20-something guys. One of them is The Engineer. He’s dumpy, unkempt, socially awkward, and brilliant at some little corner of the technological world. The other guy is The Suit. He’s fit, well-dressed, and skilled in the social arts of small talk, persuasion, and bullshit. He always gives off the impression he knows what he’s doing. These two guys are probably friends from high school or college roommates.

Like I said, this is a stereotype. But over the years I’ve found it to be kind of strange at how often it turned out to be the case.

So the two guys will take their idea and shop it around to potential investors. The Suit will shake hands, swap business cards, and give the powerpoint presentation on why their idea is the Best Idea Ever. The Engineer will slump down in his chair and alternate between feeling awkward and bored. Occasionally a prospective investor might ask him a question along the lines of “Will we be able to X?” and instead of just answering the damn question like his partner told him to, he’ll attempt to explain why X doesn’t make any sense in this context and try his best to correct the investor’s misconceptions about X using a bunch of jargon that only he understands.

If the meeting goes well, they might get a promise of money in exchange for a controlling stake in their budding enterprise. Most of the time the investor will pass. Like dating, you usually have to kiss a few frogs before you find your Prince Charming.

But in this distorted world of internet speculation, this entire process is turned on its head. The power is going the other way. If you’ve got a Suit, an Engineer, and an idea, then you’ve probably got several investors beating on your door and begging you to take their money so they won’t be left behind in the new age of Doing Business On The Internet. You can haggle to get more money than you need! Engage in brazen nepotism! Demand funding for needlessly luxuriant office furnishings in your trendy overpriced office space! Limit the investor’s share so you can sell more of the company in exchange for even more money you don’t need! It’s a seller’s market!

This behavior feeds a secondary wave. Once a significant portion of the business world is doing this, everyone assumes the herd knows something they don’t. Maybe you didn’t care about the internet before, but once you see many of your colleagues pushing their chips to the middle of the poker table, you start to wonder if this internet thing isn’t a winning hand. After all, this many people can’t be wrong at the same time, right? If it turns out this whole internet thing really is free money, then you’re going to look like even more of an idiot for not cashing in when you had the chance.

Heck, even if you know this is a bubble (and many people no doubt sensed this) it still might be worth putting some money in to take advantage of the surge. This is the rhythm method of investing; it’s all about knowing when to pull out.

You Can Trust Me

Trust me, in a couple of years you won't believe how much money you have in the bank.
Trust me, in a couple of years you won't believe how much money you have in the bank.

This glut of loose money attracts a fresh crop of hucksters. A couple of losers will adopt the Engineer / Suit roles and sell some idiotic, half-baked concept to the latest wave of lemming investors. The fact that most of the investors don’t understand internet technology beyond a few buzzwords makes it even easier to sucker them. It typically takes a business many months to spin up and begin doing whatever it is that’s supposed to do to generate income. During that time, hucksters can set themselves up with exorbitant salaries, luxurious office space, and jobs for all their friends. When it’s all over, they have a nice little nest egg and a collection of pilfered high-end office furniture.

Not everyone is a huckster, of course. Some startups are built by copycats who are simply doing what everyone else is doing. Some startups are built around solid ideas that fail for logistical or personal reasons. Some startups are a great idea that’s too far ahead of its time and fails because the market isn’t ready yet. A small number of startups turn out to be reasonably successful in the long run.

The tragedy is that a lot of these people are right. This is the future. Eventually, people will do their banking, shopping, learning, dating, reading, activism, socializing, porn-watching, and job-hunting online. But the infrastructure isn’t there yet.

The Right Idea at the Wrong Time

No! Don't do it!
No! Don't do it!

Imagine if the year was 1880 and you realized the automobile was the future, so you spent hundreds of millions of dollars mass-producing something like the Ford Model T. But there’s no road network yet. There’s no middle class to buy them yet. There aren’t any filling stations. No mechanics. Everyone might agree that your cars are dreadfully impressive and clever, but they’re impractical and nobody is in a position to buy them.

That’s what’s going on here in 1998. Everyone is building the internet we’ll need a decade from now, with no plans for how they will make money in the meantime. Everyone is adopting a “If you build it, they will come” mindset. It’s not that people are stupid, it’s that people are too clever by half. We’ve correctly predicted the future, but we’ve gotten sidetracked by the promise of riches and abandoned good business principles.

The over-optimistic fervor attracts even more investors, which attracts even more hucksters, dummies, hopefuls, rubes, geniuses, and copycats. The fire begins to feed itself. The pull of this money is so strong that it begins to distort the rest of the technology sector.

My company isn’t an internet startup. We’ve got positive cash flow and we’ve been around since the mid 90’s. But we’ve just been hired by a startup. I don’t know it yet, but I’m about to get sucked into the strange world of starry-eyed internet tech investors.

To be continued…

 

Footnotes:

[1] Which probably isn’t saying much.



From The Archives:
 

56 thoughts on “Crash Dot Com Part 1: A World Gone Mad

  1. Da Mage says:

    I was just a schoolboy when all this went down, but it sounds an awful lot like the stock market. Where people react to other people reacting and which can start a chain reaction to either drive a stock way up or down. If everyone is selling they must know something you don’t, better sell before your stock is worthless, if everyone is buying that stock could be valuable soon, better grab some in case.

    1. Matt Downie says:

      Crashes almost always follow a reliable pattern:
      (1) Something looks like a good safe investment. The 1920’s stock market, internet firms, tulip bulbs…
      (2) Clever-looking speculators invest in it. This makes the investment shoot up in price.
      (3) Everyone else notices and tries to get on board before it’s too late – some investing more than they can afford to lose. This makes the price go up even higher.
      (4) Lots of people are now theoretically rich. This thing now looks like such a no-brainer investment that people start to borrow money to invest in it.
      (5) Eventually a few people notice that the price of the item is insanely high and try to get their money out before the inevitable collapse. This triggers the inevitable collapse.
      (6) The people who put more money in than they could afford to lose are screwed. The people who borrowed to invest can’t afford to pay it back; they go bankrupt.
      (7) The people who lent money to these borrowers are also screwed. The lenders were probably borrowing money from someone else, so the pain gets spread around; at this stage banks may collapse or get bailed out by the government.
      (8) Society goes into a period of low confidence – no-one’s willing to risk their money anywhere, making it had for businesses to get off the ground. High unemployment.
      (9) People get bored of being pessimistic. The economy recovers.
      (10) After a few years, the next bubble appears; go back to step one.

      1. Zekiel says:

        Thank you – that was a very concise and helpful explanation!

      2. Tom says:

        In a word, hysteresis.

        1. Well, you forgot one of the steps that makes it a CRASH instead of a recession or market correction:

          0.) the central government bank controls interest rates and adopts a “cheap money” policy, thus essentially injecting anesthetic into the business regulators that are supposed to warn people of an impending market adjustment in time for them to save, if not their pile of luxury cash, at least their rent money.

          The rise of interest rates–increasing cost of investment capital–is what is SUPPOSED to happen when there’s a lot of speculation, that is, a demand for capital. Rising interest rates signal that it’s time to Stop Borrowing Money (because people can’t afford it) and focus on MAKING some money. When interest rates are not permitted to rise by the government, this NEVER happens. Any market bubble is vastly inflated. The consequences are inflated. And when it goes, it takes EVERYTHING with it.

          And the “all-wise” Fed (or similar central bank) usually lowers interest rates even more to “encourage recovery”, thus setting the stage for the next big bubble.

          1. Matt Downie says:

            As far as I can tell (from my amateurish perspective), interest rates don’t affect people’s behavior all that much. They’ll keep money in the bank at zero interest if they don’t know what to spend it on, or borrow at huge interest rates if they think they’ve spotted a good deal, or if they have no other way to postpone bankruptcy.

            And regulators, bankers, and governments are all as bad at spotting bubbles as everyone else, so even if they were willing to try to choke off irresponsible borrowing they wouldn’t know when to do it.

            1. It does when interest rates are competitive (and consequently much, much higher most of the time) instead of centrally controlled.

              People don’t care about what they do with their money because unless you want to play the stock market or invest in a hedge fund (and you better know what you’re doing then) there’s basically nothing particularly good to DO with it any more. The bank’s marginally safer and more convenient than trying to haul around giant wads of cash, that’s all. Nobody looks at their savings account and considers it an INVESTMENT. It doesn’t even come close to keeping up with inflation–every minute that money sits there, it’s LOSING value. (And you get taxed on the interest as well.) If you want to get the most out of your money, you spend it as soon as you get it–actually, you probably spend it BEFORE you get it–inflation also decreases the comparative value of the interest charges you pay later on.

            2. Felblood says:

              Add to this that not all markets will be booming and busting at the same time.

              Precious metals bubbles, especially gold bubbles, are often driven by crashes in other investment fads.

              When confidence in stocks is low, people look for those “safe” stable investments, which drives up the price of non-perishable commodities. So, if you’re buying those commodities after the price has already been driven up, good luck getting your money back after market confidence has recovered.

              This leads to an uncomfortable trend of people with large gold investments preaching the virtues of investing in gold, whenever there’s some Scary New Trend on the evening news. Remember that these people are not advising you to follow their example out of some altruistic desire to share ow great their investing experience is. They need new gold bubbles to continue forming in the future, so they can count on being able unload their stash at something like what they paid for it.

              No matter how stable it is, buying a commodity at high point is rarely a “safe” investment.

              1. Commodities are actually the *opposite* of investments. They have no earning power, no productive gain, and, in fact, are very likely to LOSE value should more of the commodity come on the market.

                They are not earners. They are walls against runaway inflation.

          2. Ninety-Three says:

            These days with a global market, that gets a lot more complicated though. For instance, parts of Canada are currently undergoing a housing bubble because for some reason, China has decided that Canadian real estate is the hot new investment. A lot of people here recognize that the value of real estate is inflated, but because the buyers are from overseas there isn’t much that the Canadian banks can do about it.

            1. Witness says:

              It would be hilarious to find this was caused by someone in China who thinks a bunch of Americans really are going to move to Canada over the election results.

              1. Adeon says:

                From what I’ve been told a large chunk of it actually about rich Chinese people stashing money where the Chinese government can’t get at it. They don’t care so much about the long term profit on the property (so long as it maintains a decent value) they just want to put their money somewhere that it can’t be easily seized and most countries have rules that make seizing real estate very difficult.

                It’s similar to the reason that interest rates on government bonds can sometimes go negative (meaning you are paying the government for the privilege of lending them money). Government bonds are basically the safest place to store money (even safer than a bank) so if enough people are looking to stash their money somewhere safe the government can get away with offering a negative interest rate and still get takers.

            2. Lachlan the Mad says:

              Australia is also developing a housing bubble for the same reason. It’s a serious problem because the price of housing is so far above the average income that ordinary people have just stopped buying houses. But this is putting pressure on the rental market, and soon ordinary people won’t be able to rent houses either…

              1. Felblood says:

                –and now you have everything you need to understand the conflicts between Liberal Californian retirees and Conservative states with relatively weak, raw-materials based economies.

          3. Zak McKracken says:

            That was certainly a factor in the 2008 bank crash, where the “product” was mortages. With mortages, interest rates are the price of the product in question. Then there’s the issue of national banks’ interest rates being related to expected long-term economic growth and the question whether economies can keep growing forever at 3% a year (which I honestly cannot answer). In 2008, the whole world economy started operating well outside known parameters. That was not the case for the dot-com bubbles.

            I don’t think that the dot com bust had a lot to do with interest rates, though. I had just finished school at the time, and remember the craze on the stock market and with new companies and all, but in the end it did not affect the “real” economy too much, and I don’t think that interest rates were affected too much, except that the national bank lowered them a bit, as they always do in response to an economic downturn. But the thing that turns a downturn into a crash is always overconfidence of investors detaching a product’s market price from its value to “regular” people, turning the whole thing into a game of chicken. If you pull out too early you loose out on gains, if you pull out too late, you loose it all. So when the first investor start getting out, things go into free fall, independent of what the national bank does.
            If the product is mortages, of course, then the national banks have a lot more influence on the price, and then they become a huge factor.

            1. This is probably going to spoil a number of Shamus’ articles in this series, but the dot-com bubble was basically the Facebook IPO, just with hundreds or thousands of small startups, money flowing everywhere, and no one except a handful of companies had anything substantial. Everyone was buying, no one was thinking, and then the bottom fell out and fortunes were lost in seconds.

              There’s a reason tulip bulbs were mentioned in one of the first comments. :P

      3. Grudgeal says:

        This is also the pattern of housing bubbles, incidentally, only with (1) being housing and (6) and (7) being so much worse for the average investor as you’ll be living inside your investment.

        Odds are if you live in Europe or the US you’re either at stage 4 or stage 9 right now.

        1. Matt Downie says:

          That was the case with the recent sub-prime mortgage crash.

          But, as with most of these things, it’s hard to know if you’re really in a bubble until it starts to burst.

          I decided not to buy a flat near where I was working in London about fifteen years ago, because the prices had gone up so much it seemed like they were long overdue for a fall. Instead I saved up my money and waited, while property prices went up, and up, and up…

          If planning regulations mean there are fewer places to live in an area than people who want to live there, there’s really no downwards pressure.

          1. guy says:

            When people start making investments on the theory that something will have a high rate of growth in value forever, you are in a bubble and the only question is when it will burst.

            1. Lachlan the Mad says:

              Although under this definition the entire modern western economy is a bubble.

              1. Ciennas says:

                Nah. The economy is comprised of multiple markets that ebb and flow, most producing some form of bubble at some point or the other.

                It’s a stew being heated to a boil, rather.

            2. Probably the easiest measure is actually how much collateral people are demanding for loans. If you’re hearing things like “no money down” . . . bubble. It means people are abandoning slow-but-sure investments for high risk/high POTENTIAL reward investments. Steady investments require you to actually pony up cash first.

              1. The difference between a penny stock and Berkshire-Hathaway, to be snarky. :P

  2. Ryplinn says:

    I was just entering sixth grade in 1998, and the brand-new Bondi Blue iMac was the coolest thing I had ever seen. I remember seeing clock speeds on new computers double every time I blinked. Cable internet was just starting to be a thing. United States v. Microsoft was just kicking off, and all the other nerds and I would argue endlessly about PC vs Mac.

    1. tmtvl says:

      Who could have imagined that a decade and a half later Linux would outclass them both?

      1. Cap'n Hector says:

        I’ve got all three on my desk right now and I’m not sure I’d say that Linux outclasses both Mac OS and Windows. They each have strengths but I think that Linux is still the most awkward desktop OS I’m using for many tasks.

        1. tmtvl says:

          Well, if you’re using a GTK+ desktop, or don’t use multiple monitors it doesn’t outshine the alternatives by quite as much. But multiple monitors with awesome WM feels so good, especially hooked into Plasma.

          I feel like a Shadowrun decker jacked into the matrix.

  3. Sleeping Dragon says:

    Since I think you approve of us doing this:

    2nd last paragraph, first sentence “The over-optimistic fervor attracts more even investors,” should probably be even more?

    1. KarmaTheAlligator says:

      Good thing I refreshed the page before posting, I would have posted the same thing.

  4. Sleeping Dragon says:

    I think I heard the term “dot com bubble” on the news at some point but I was in my teens with no real economic awareness and my country was somewhat behind the technology curve anyway so I think we mostly experienced the fallout rather than direct fire.

    That said I have to say it’s really amazing looking back at any such phenomenon from the perspective of 10-15-20 years, when we’re already far enough away from it to be able to perceive it as a “past event” and sort of look at it clinically but at the same time it’s not so far away that it’s warped by being “history”.

  5. Galad says:

    Ooh, thanks for taking the time to write this series out, Shamus!

  6. Supah Ewok says:

    This is a story I’ve been wanting to hear from you for years, yet I thought you’d said in the past that you weren’t ever going to tell it due to NDA’s, court hearings, etc. Something change, or has it just been enough time?

  7. Daemian Lucifer says:

    Like I said, this is a stereotype. But over the years I've found it to be kind of strange at how often it turned out to be the case.

    It shouldnt really surprise you.Stereotypes usually arise because people notice a pattern.What is wrong about stereotypes is when they try to explain the reasoning behind the pattern.

  8. Darren Matthews says:

    It was great to be a programmer then. I was hopping from one job to the next getting big raises every time. They hired anyone who could spell C. The perks were awesome as well. Big parties and trips to the Bahamas and Hawaii. There was a company called Sun that my wife worked for. Their motto was “The dot in dot com.” That bit them hard later when all their servers were liquidated from all the failed companies and they couldn’t sell new ones to anyone.

    1. MichaelGC says:

      “Ess ee ay?”
      “NEXT!”

  9. Aanok says:

    I will read this religiously. You hinted at some of it in the Autoblography and it’s great to be able to see a more extensive recount.

    I do have to note though, to everybody’s pain including mine, that the Internet needs to be capitalized.

    1. Syal says:

      That’s what the entire story is about, isn’t it?

  10. Damn, I enjoyed reading this! I’ve heard about how bad the crash was but don’t know much about it, It’ll be interesting to hear the story from your perspective.

    Really looking forward to the next part!

  11. SyrusRayne says:

    I was 6 at the time, so this should be an interesting look into events during the nascence of my personhood.

    1. Chiladelphus says:

      Yeah, I was 9. I think it was about two years later that my dad got our first family computer, and I might even have heard of this thing called the Internet for the first time! Living overseas in Taiwan at the time might have helped with the insulation.

  12. Cybron says:

    Looking forward to this.

  13. Duoae says:

    Even though I was technically old enough to be involved in the Internet at the time, I didn’t actually go online until December 1999 or Jan 2000 after I started attending university.

    I just didn’t have the friends, teachers or family to even push the idea into my consciousness. I’m still the only one of my friends who is really into technology and gaming. It’s weird to think I come from an intermediate time period when life was all about physically meeting up and going to computer fairs in order to see, feel and smell new tech and games…

    Sometimes it makes me feel like a dinosaur.

    1. BenD says:

      No no, I get to be a dinosaur! I joined the Internet the August right before the Eternal September. And somehow I stayed mostly ignorant of the crash anyway.

  14. Cozzer says:

    This looks really interesting! I’ll be looking forward to the following episodes.

  15. Leslee says:

    In 1990 I briefly dated an 18 year old high school dropout who was the sysop for a local BBS that I belonged to. He had a computer desk made out of 2×4 planks that leaned awkwardly to one side. The electricity in his house was occasionally shut off for lack of payment. I gave him driving lessons in my pickup truck so he could get his license.

    Fast-forward to 2001, I’m now living on this same guy’s couch after a bad breakup. He’s become a very successful programmer and is working for one of those dubious dot com start-ups that will soon fail. He admits to me that he has more money than he will ever be able to spend. I see some of his bank statements. He’s not kidding.

    Today this same guy is a millionaire living in San Francisco.

    The dot com boom was potentially very lucrative if you were a white guy in the 1990s who could code. For the rest of us? Not so much…

  16. Daemian Lucifer says:

    In a world
    Where a scruffy engineer can pair with a sleek talker
    And they get showered with money for selling air on the internet

    One man
    Will be inexorably pulled in
    And plunged deep into the dot com roller coaster

    This summer

    Leonardo DiCaprio is
    Nerd in a workplace

    1. Galad says:

      Nailed it *golf clap*

  17. SharpeRifle says:

    Not sure how if we can put video in here so I’m dropping links….a musical economic interlude if you will…

    Fear the Boom and Bust Keynes vs. Hayek Rap Battle

    Fight of the Century Keynes vs. Hayek Rap Battle Round Two

    1. Shamus says:

      While I appreciate the comedy, this is skirting pretty close to politics. In fact every Bernie Sanders vs. Margaret Thatcher argument (or whoever, insert your own heroes / villains) is a proxy of the fight between Keynes and Hayek. It’s an interesting debate, but I think it’s a little too volatile a subject right now. Let’s just act like savages and pretend that booms and busts happen randomly and mysteriously because the gods decree it and there’s nothing anyone can do about it. Because for a 28 year old nerd, that’s exactly how the world felt.

      This also goes for the debate above on interest rates. I know everyone’s been cool so far, but I’m just not in the mood for more political debate right now.

      And yes I realize it’s my fault for bringing it up.

      1. SharpeRifle says:

        Whoops sorry! Mainly included it cause I think for all that they do favor one theory over the other they actually do a fair job explaining the sides as well. Didn’t stop to think how close that “third rail” might be to it…8-P

  18. Son_of_Valhalla says:

    I’ve got a feeling I’m going to enjoy this series. Financial/business stuff is sort of becoming my thing.

  19. Nessus says:

    I was fresh out of high school back then. I remember being a bit bewildered by it. I wasn’t up on the economics of it, and knew next to nothing about the ins and outs of investment (or investment culture) but I do remember wondering how much potential an online business boom could really have in a world where at best only 1 in 10 (middle-class and up) families had a PC, and of those only maybe 1/3 were online. A time when most online shops were tiny, awkward niche-serving things where you needed to place your order via email, because basic shopping cart systems were the latest in cutting edge web design that only a handful of the biggest vendors (like Amazon) had.

    I mean, it was already obvious that someday the internet would be as ubiquitous as TV, but at the time it was still so very much only barely finding it’s legs, and was clearly not widely used enough to support that kind of massive retail boom.

    I was actually more expecting something to come along that would be sort of like a game console or cable box but for internet surfing. Y’know, for “normal” people who didn’t need or want or couldn’t afford an actual computer. And I think for a very brief period something like that did exist, but IIRC it was too overpriced, or underpowered (even for the net) or both.

    Even up to the early aughts, I remember having to actually ask people if they had internet access before recommending some web resource or another. As opposed to just a few years later when it started to be a given. There was definitely a point somewhere in the mid-aughts (years before the smart phone) where the internet truly became a household thing almost overnight, but I don’t know what the tipping point was.

    1. Richard says:

      Several of those single-purpose machines were made and sold – I recall my mother buying an Amstrad Emailer, which only sent and received emails by calling a premium-rate number.

      They were all doomed because the price of a general-purpose PC kept falling rapidly.

      The Emailer was really expensive to run and she regretted it within about six months. Surprisingly, the back-end for that service was kept running until 2011!

      Nowadays in the “developed” world something with much greater functionality costs about 10-20 pints of beer, and the data costs are much less than a daily newspaper.

    2. Chris Davies says:

      I lived through these times, and I’m still utterly baffled by the economics of it and the continued economics of investment in online business.

      It seems to me like the whole process is driven by early investors driving companies towards unsustainable growth patterns in order to make obviously worthless companies seem like temporarily attractive investment opportunities. To take an example look at Groupon, the utterly mad idea that coupon clipping could be a profitable business. The company spent millions in venture capital money on rapid growth and pushed for an IPO before it had even had so much as a single quarter of profitability. The venture capitalists all got paid, while if you were John Q. Investor who bought shares at the IPO, you would by now have lost a significant part of your shirt.

      I really wonder if silicon valley is actually a real business phenomenon or just a sort of legal ponzi scheme designed to transfer wealth from institutional investors to a handful of billionaires via the medium of acres of worthless code. The sort of venture capital available in the US is simply not on offer in any other country. I’m torn on whether this is a healthy appetite for risk that allows for a larger variety of business ideas to be tested by the market, or simply promotes an unhealthy environment where businesses are never required to demonstrate viability through actual profit.

  20. Durican says:

    This is a fascinating subject. I was too young to pay attention to the news when the dot com bubble happened, so this is a great way to gain a perspective on a pretty dang huge event that happened within my own lifetime.

  21. Anachronist says:

    A childhood friend of mine has been running a successful cloud-IT-services company for about 15 years now. He has some large clients as customers, as well as a large number of start-ups. He’s seen many start-ups come and go (his company used to be one, also). He told me the one thing he’s observed that is common to all the failures he’s seen: the principals weren’t “all in”. Maybe they had a great idea but didn’t want to do the work to make it successful, hoping instead to be bought out. Maybe the start-up was just a side business or a hobby. Maybe they were killing themselves running other start-ups at the same time. In all these failures, they weren’t “all in”, not fully committed. Now, that isn’t saying that if you’re all-in, you’ll be successful. My friend just observed that if you aren’t all-in, you will fail.

Thanks for joining the discussion. Be nice, don't post angry, and enjoy yourself. This is supposed to be fun. Your email address will not be published. Required fields are marked*

You can enclose spoilers in <strike> tags like so:
<strike>Darth Vader is Luke's father!</strike>

You can make things italics like this:
Can you imagine having Darth Vader as your <i>father</i>?

You can make things bold like this:
I'm <b>very</b> glad Darth Vader isn't my father.

You can make links like this:
I'm reading about <a href="http://en.wikipedia.org/wiki/Darth_Vader">Darth Vader</a> on Wikipedia!

You can quote someone like this:
Darth Vader said <blockquote>Luke, I am your father.</blockquote>

Leave a Reply

Your email address will not be published.