A Continuation on my series: The Internet. Part One | Part Two

 

When I think about 1992, I think about Barbie cake, because I was 5 and all I remember is my birthday, and a cake shaped like a Barbie. I definitely don’t think about what the Stock Market was doing, how anyone researched investments, or what type of jobs people had, other than Barbie-cake maker and Barbie-cake deliverer. But even in 1992, while I was screaming at my big brother for trying to “help” me unwrap my birthday presents, the big world around me was already changing, and, as usual, we can all blame Al Gore.

The Hot Wind That Inflated The Bubble.

Even before the term “Internetworking” got shortened to Internet and anyone knew it was a thing, business magazines were ruining our lives over it. Between April of 1992 and July of 1993, practically every business publication, including Forbes and BusinessWeek, were running featured articles about Al Gore’s infamous “information superhighway,” and the wealthy, trading floor-savvy businessmen of the western world were eating it up.

Here’s the weird thing, though: in 1992, none of these magazines were talking about the actual Internet.

No, in 1992, while I was riding my sugar high into a nap time coma, the enthusiasm for the Information Superhighway was all about interactive television, electronic books and magazines, and ‘smart’ home technology. No one knew what the Internet even was, so they were left only to speculate the way this ultimate network of networks would affect things they did know about – like phones, non-networked computers, publications, and, of all things, refrigerators. “You can have a refrigerator that knows when you’re out of milk!” one publication claimed. And the non-5-year-old people of 1992 just loved that idea. Dreams of the ultimate device – a phone, a television, and a computer all rolled into one smart box – danced in their heads all the way to the stock market floor, where the elite of Hollywood, Silicon Valley, media conglomerates, and cable companies dropped unspeakable amounts of money into tech startup ventures. What would eventually be known as the Dot-Com Bubble had begun.

The Era of the Dot-Com, the Dot-Con and the Dot-Gone.

The commercialism of the Internet was not the catalyst of the Dot Com bubble; it was basically the plan B. When tech companies and tech investors started to realize that their smart fridge wasn’t going to happen anytime soon, shockingly, they took their dollars and headed west for the second incarnation of the California Gold Rush. It was in Silicon Valley, named after the silicon chip, or microchip, that the galaxy of the hundreds of tech and Internet-based Startup stars exploded, and then collapsed upon themselves between the years of 1995 and 2001.

It’s important to remember that the world had only received access to the Internet in 1995, and the experience could be liked to a cat with a mouse. The cat was so excited to have caught the mouse, so unwilling to let it go, and yet, so entirely unsure what to do with it. The chase was thrilling, the success electrifying, and the aftermath – wholly confusing and overwhelming. With that imagine in mind, let’s talk about the major players of the bubble, what mouse they chased, and why it all went so very, very badly.

The Game Is On.

Hundreds of Internet companies swarmed the market in the late nineties, and while most of them failed, some of them failed spectacularly. Take for instance, the company Webvan.com. It launched in the late nineties as a grocery delivery service that promised to deliver groceries to customer homes within a half-hour timeframe designated by the customer. In 1999, the company was delivering in 8 cities in the US, and made a $1 billion dollar investment in warehouses in order to expand to 26 cities by 2001. In 1999, the company was valued at $1.2 billion dollars. But without the customer base or existing numbers to back up the profits for the expansion, investors began to run for the hills in 2001, and by July of the same year, Webvan.com laid off its 2,000 employees and called it quits. Game. Set. Fiery Explosion.

There were other courier services that blossomed and failed in the bubble, including Kozmo.com, which launched around the same time as Webvan. The founders of Kozmo.com created a site for urban customers to order small goods like ice cream or DVDs, and have it delivered to their home by a messenger within the hour of its order. That all sounds pretty great until you take note that Kozmo charged no delivery fee, had no minimum purchase requirement, and also simply priced the items at cost. Their argument for this obviously profitless business model: we’ll make it up in not having a storefront, because INTERNET! Apparently not. In 1999, the company lost $26 million dollars, withdrew from plans for initial public offering in 2000, and officially closed up shop in April of 2001. Game. Set. No Ice Cream For You.

Some of the Dot-Com companies made it out by selling out: Cyberian Outpost, one of the first successful online retailers in the Dot-Com era, was acquired by Fry’s Electronics in 2001. eToys.com, an online toy retailer, was purchased by Toys-R-Us in 2009. Geocities.com, eGroup.com, and Hotjobs.com were all purchased by Yahoo during the early 2000’s. Others were acquired by eBay, Amazon, and Google in subsequent years. Those were the lucky ones.

But why did these companies fail so hard? Why did the bubble blow up on March 10, 2000? Well, lots of reasons, really.

Do Not Pass Go, Do Not Collect A Paycheck, Ever.

From the start, the business models of these startup companies were flawed. Early e-commerce companies believed that the most important factor was to have as many visitors on their site as possible, and that would, by the magic of the Internet, translate to a profit. So they grabbed a gimmicky name, a bit of ad space, and sat back, waiting for the dollar-dollar bills to come rolling in. Most of them didn’t bother to research their product, study the competition, or build a customer base. They had the whole world at their fingertips, and surely the whole world would be waiting for them. Right, pets.com? < sad trombone sound here >

Investors are to blame as well. The Internet was a completely foreign, speculative environment, and without historical evidence or numbers on which to base value, IPO (initial public offering) prices were way too high. Start with a number far outreaching the true value of a company and then add an overhyped frenzy of buying, and it’s easy to see how a company like Flooz.com, which sold “online currency” that could be used only at participating retailers, could raise $35 million and then lose it all in less than 2 years. Because of course they did.

During the Y2K frenzy, the switchover accelerated technology spending, but after the New Year, when the robots didn’t take over and we didn’t all die because wibbly wobbly timey wimey, businesses found they were all set as far as their technology hardware and software needs were concerned, and spending declined. Pair that with the poor performance of the online retailers during the 1999 Christmas season, which became evident when the public companies revealed their quarterly reports in March of 2000, and everyone just sort of…lost faith. Investors bailed, the market crashed, the terrorists bombed the World Trade Center in 2001, and the Dot-Com era was officially Dot-Gone.

Everybody Loves A Comeback

The companies that did survive, such as Amazon, eBay, Priceline and Shutterfly, did so because they followed a more traditional business model: forgo fast profits in order to build a brand name. Know your customers, know your product, and know your competition. The Internet might have been a new place, but the wacky world of running a business was not. After the devastating bubble burst, both tech entrepreneurs and tech investors stopped acting like the cat with the mouse, and began behaving more like human people who had lived in a developed country in the last 35 years. They remembered that popularity doesn’t necessarily equal profit, and that having an actual business plan was essential to having a successful business. Most importantly, they understood, finally, that the Internet was a tool, not a winning ticket. Thusly, the new Internet was born.

In a recent study, the Internet now accounts for 21% of the GDP (gross domestic product) among developed countries in the last 5 years. In the United States, $68.2 billion of America’s GDP is credited to the Internet, which makes sense, seeing as how 274.2 million Americans were hooked up to the Internet by 2011. When I read those numbers, I said, “Whoa. Those are big numbers. That feels like everyone in the world.” And then, while I was writing this article, a man at the library asked me what “does a laptop even do?” So it’s all about perspective.

The New Internet Era is slightly more rational, patient, and thorough in the name of entrepreneurship. As technology continues to develop, bringing the features of the Internet and the World Wide Web closer and closer to our pockets and our hearts, literally there is a wifi-enabled pacemaker now, we see an influx in new jobs, and a rebranding of pre-existing jobs, all thanks to the wide-stretching arms of the web.

Take a company like Facebook for example: there is no physical thing that Facebook generates, and yet, before it’s Initial Public Offering, Facebook claimed to be responsible for the creation of almost half a million jobs world wide. At the Menlo Park headquarters, over 8,000 employees flood the campus on a daily basis. And they’re not all hackers and computer geeks, either. Facebook employs the obvious: software programmers, web developers, graphic designers and hardware technicians. Marketing and Sales gurus, of course, and you have to have administrative staff and managers to wrangle all of these digital wizards together. But Facebook HQ also needs janitors, and a maintenance staff, and chefs and cooks and bicycle repair guys and bankers and dry cleaners and bus drivers and security guards and valet parking attendants. Not everyone goes to work at Facebook to plug in to the Internet, but everyone on the payroll can thank the Internet for his/her job. And that’s just Facebook. I won’t even get started on Google.

For every 1 job that technology and the Internet have taken away, 2.6 new jobs have been created. Living in the San Francisco Bay Area as I do, I feel like the Internet is the working world, and had I not spent 2 weeks in farming towns on the Irish coast this year, I’d be certain that no one could live outside of it. The other day I went in to work only to be told that the Internet was down, and I replied quite sincerely, “Then why am I even here?” Currently, we’re riding the social media wave, another bubble that holds the potential to send us all flying a decade backwards in time going, “what JUST happened?” if we’re not careful. The technology shifts, the platforms change, and while that’s great and exciting, it’s important to remember that nothing new can be devoid of its predecessor. Business, at its heart, will always be business, internetworked or not.

I know for a fact that even now, 22 years after the fact, there is a company still working on that smart refrigerator, and that the minute it comes out, we’re all going to want it. And that is all the proof you need: the bubble can burst, empires can fall, but no one, not no one, can kill the dream of a self-shopping fridge.

Join me next month for the final installment of The Internet series: The Future.