Historical perspective
Every time a major change happens in technology, the stock market goes through some ups and downs. The explosion of a new medium or a new technological advance generally helps create a whole slew of new companies. After a few years, a lot of those companies fold and go away. It happened with radio; it happened with television (Time Magazine called the color television “the most resounding industrial flop of 1956”); it happened with early computers (remember MITS? Tandy? Commodore? Heath? Morrow? Any of those companies still around today?)… and yet, each of those created markets that went up, went bust and revolutionized the way business is done and media is consumed.
Doing the numbers
But maybe there was a real failure. Maybe the dotcoms are responsible for the big loss in jobs and the wiping out of the US economy.
Let’s take a closer look at where the money went bad in the 90s. What is the biggest failure of the 90s? Enron. Must have been a big dotcom. The only problem with that is that, taking a look at their website in 1999, their homepage talked about them being an energy trader (thanks to the Internet archive for preserving such jewel). When Enron wiped it, it took 150 billion dollars out of the marketplace. By comparison, if you combine Webvan ($1 billion), HomeRun ($750 million), pets.com ($250 million), etoys ($100 million), boo.com ($100 million), furniture.com ($125 million), you still come up with less than 1/20th of the overall failure of Enron. We could look at Worldcom, a large-scale phone company, the other big loser in the downturn and get similar analysis but since it was not a dotcom itself, what’s the point.
What we now call the dotcom bubble was a case of money going largely to companies that pretended to be dotcoms and, through shady practices, defrauded investors. Under the covers, however, they were NOT dotcoms. While many dotcoms failed during the early 2000s, those failures did not compare in any way to the failure of just two large-scale shady companies.
Internet vs. media
As we all know, the Internet gets around the mainstream media and it’s not something they enjoy. But of course, we know that the media are lilly-white when it comes to the dotcom bubble. All of them warned investors about the financial fundamentals of Internet companies, right? Well, except for continuous 24 hours reports on CNN, MSNBC, CNBC, CNN/fn, touting the wonders of the new economy; also except for magazines like Time, Newsweek, Fortune, Business Week, etc… which did the same; except for newspapers like the Wall Street Journal, the New York Times, USA Today, etc… that wrote flattering profiles of dotcoms and their owners.
The truth is, the media created much of the dotcom bubble, and then, when things went south (as they were expected to), said that they had never believed in all that stuff… except they seemed to have forgotten to tell people during the go-go 90s that they didn’t believe in the dotcom potentials.
Internet and Politics
So the next question, once we know that the media were responsible for the Internet bubble, is in looking at how they work in politics. Governor Dean, an unknown governor from a small state, uses the Internet for political purpose. His campaign manager moved power to the edge, empowering people in terms of getting involved in the electoral process. Together they raised $40 million dollars from individuals.
The media made it very clear that Dean had no chance of ever winning. Actually, it was so obvious to them that they barely covered him. Time magazine was so sure that he was an also-ran that they never covered him, except for that gushing cover article annointing him front-runner 6 months before the first votes were cast. And Newsweek did not consider him possibly having a chance either, right?
The media did set Dean up for a fall by raising expectations and then, when he failed to meet them, complaining that he did not meet them. This is a familiar game. For example, AOL told reporters that MSN would start with 2 million customers after the introduction of windows 95. It was not a number that microsoft invented, it was one invented by its competitor. The same is true about the introduction of Windows 95: at the time, an analyst said that Microsoft would sell 10 million copies from August to December 1995. When Microsoft failed to meet this, the same analyst put out a report saying that uptake must be slow because Microsoft had failed to meet the 10 million target. In the same way, the media said Dean would come in at number one, and when he failed to do so, said that his campaign was faltering.
I would say the only mistake the Dean campaign made in all of this was to listen to the media and change to fit their expectations. The change, of course, meant divorcing oneself from the Internet crowd and I think that, in the end, the real loser in all of this is, once again, the Internet and its potential for true democratization of the electoral system.