Facebook, Twitter and Apple play a huge role in our daily routines nowadays, and cloud computing seems poised to do the same. But we should remember that none of this would be so had the Dot-com Rush never happened.
The Dot-com Rush (or, the Internet Bubble) refers to the period from roughly 1994 to 2000, when a combination of new technological products, mainstream press hype and very high stock prices pushed the internet into the mainstream. Product-wise, AOL bought in-home internet connections to the general public while Microsoft spent billions to make their Windows 95 operating system a success, with each product making it easier for average folks to surf the web.
The success of Windows 95 sent Microsoft’s stock price through the roof, turning the company’s employees who accumulated loads of MSoft stock over the years into millionaires…secretaries and janitors included. Outsiders took that and another incident (which I’ll get to shortly) as proof that “easy money” actually existed. From there, tons of internet startups, most of them stupid and short-sighted, pop up out of nowhere. Their CEOs made sure their startup name contained “.com,” filed initial public offerings and got rich in a matter of weeks.
All this pushed global stock markets to record highs, causing average investors to jump on the bandwagon and buy as much tech stock as they could in search for instant wealth. So began the Dot-com Bubble. People eventually realized how stupid and short-sighted these companies were and stopped buying not just those stocks, but all stocks, pushing the markets to instant lows. So burst the Bubble.
The burst didn’t stop the growth of the internet, it just forced internet companies to act smarter. Case in point: Yahoo! rose to prominence during the bubble while Google rose to prominence after it burst. So looking at the Dot-com Rush as a business case study isn’t a bad idea. There are a lot of books on the subject, most of which are so-so. Either they don’t tell the whole story or they tell it poorly. And when I think about books that I would suggest on the subject, only two come to mind:
The New New Thing
by Michael Lewis
Writer Michael Lewis has been getting a lot of props for his coverage of the 2008 financial crisis. His Pulitzer-winning article “The End” along with his series of Vanity Fair articles were combined and paraphrased to create his most recent novel, The Big Short. This precedes his first novel, the phenomenal Liar’s Poker which chronicled both the birth of mortgage-backed security and the Michael Milken junk bond scandal.
I’ve always felt that his critically acclaimed stuff overshadows his fascinating The New New Thing which told multiple stories about entrepreneur Jim Clark, including the story of his role in that “other incident” I mentioned above: the rise of Netscape.
Netscape was the first commercial web browser and its parent company, Netscape Communications, was the first purely internet company to issue an IPO. Prior to the IPO, Netscape Communications didn’t have an office, its employees didn’t have business cards and, most of all, the Netscape browser hadn’t even been released. But they promised that the browser would get your grandmother on the internet and key industry players made sure that the whole world believed this. The result: on the day of its IPO, Netscape shares started at $28 a piece and closed at $75. Since all the Netscape employees were paid in company stock instead of cash, they became millionaires à la the Microsoft employees.
Netscape’s IPO wasn’t successful because of a great product, just the promise of one-a fact that wasn’t lost on anybody. After this, people with absolutely no internet knowledge started internet companies with the belief that they could duplicate Netscape’s instant financial success. They would then take the company public with the hopes become millionaires overnight. Obviously, some pretty dumb companies came out of all this but many people still got rich.
Netscape would eventually be overshadowed by Microsoft’s Internet Explorer and become a shell of its former self, but its IPO changed the course of American economics in a way that only the 1929 stock market crash can compare. It’s an important party of the story of how we got here, internet-wise, and should be studied by all.
All the Rave: The Rise and Fall of Shawn Fanning’s Napster
by Joseph Menn
A funny by-product of the Dot-com Bubble was the arrogance of dot-com company CEOs. Most loved to talk about how their company would change the business sector they were in: if a startup based on selling cars showed up, its CEO told anyone in earshot how their company would create a revolutionary way of buying and selling cars and do away with the need for car dealerships. All predicted high levels of success, almost all failed.
Within this arrogance lies the irony of Napster: that it was a music-based company that entered the music business, revolutionized how it functioned, then failed spectacularly as only an internet startup could. It was popular as hell as it allowed anyone to download music for free and it paved the way for Apple’s iPod and iTunes. But the company’s erratic CEO John Fanning, not his nephew Shawn as many assumed, was focused on taking Napster public and cashing in on the Dot-com Rush hype. Instead, he should have focused one achieving one of the company’s main priorities: legitimizing a business that clearly had legal issues.
Without spoiling the whole story, I can tell you that Joseph Menn’s All The Rave covers this story quite nicely. From the company’s humble beginnings in suburban Boston to its public war of words with the music industry, all the way through to the trials, the failed Bertelsmann merger and eventual bankruptcy. Menn tells the Napster story in an easy-to-read and enjoyable writing style.
Menn also takes some time detailing how Napster was representative most internet startups: a company with a weak business plan whose megalomaniac boss believed that it was strong enough to make him quick cash. Many watched Netscape make a fortune on the promise of a good product-few noticed that they delivered on that promise. Internet Explorer would beat it out eventually but early on, Netscape got everyone including your grandmother on the web with ease, like they said they would. Napster, along with Pets.com, DEN and others, thought that dot-coms would make you rich, even if they did a half-assed job. All of them were wrong.
The two books above, I believe, best chronicle the beginning and end of the Dot-com Rush. You can buy them by clicking on the two Barnes & Noble links below if you like, but feel free to tell me if there are other books I should check out.