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Tuesday, Nov 24, 2009
At the same time, to suss out how so many developed so extravagant a crush on the Internet, Cassidy traces the origins of the network of networks to visionary engineers who transformed a failsafe, military technology into something of broader social value. As much as anyone, these pioneers were astonished by how rapidly the Internet grew, and that model of exponential growth was fixed in minds as a PowerPoint slide with a "hockey stick"-shaped curve on a graph, with the clear implication being that revenues would follow a similar, upward trajectory.
From there, Cassidy covers what was a sort of dress rehearsal for the bubble -- the hype about the "information superhighway" and "interactive TV," circa 1993-95. He then proceeds to tell how the Internet eclipsed ITV and, thanks to the phenomenal IPO of Netscape, in August 1995, caught the attention of Wall Street -- in particular, a handful of investment bankers and analysts such as Frank Quattrone, Henry Blodget and Mary Meeker. These three -- Meeker, above all, with her February 1996 Internet Report -- convinced their peers that there was much more cash to be made on dot-coms. With Meeker in mind, Cassidy writes, "On Wall Street, financial success corrupts, and absolute financial success corrupts absolutely. The corruption is not necessarily venal: it affects people's judgment rather than their probity."
Once it became possible to float a profitless company on the NASDAQ and, with the proceeds, buy your way to respectability (as AOL did most spectacularly in its purchase of Time Warner), you might feel like a loser for not trying yourself. This dread of being left out, the rise of online trading -- especially day trading -- and "The Greater Fool theory of investment," Cassidy contends, became the essential drivers of dot-com mania. (The "greater fool" theory of investments holds that what matters is not the earnings, or performance, of the company you hold stock in, but simply that you can resell its stock to a sucker for a more ridiculous markup than you paid).
As for signs that the end was near, Cassidy ferrets these out with aplomb. He's on to That Darned Barron's Piece, of course, the one by Jack Willoughby on March 18, 2000 that indicated that more than 200 dot-coms would go broke by year's end. But he also points to the Fed's interest-rate hikes early in 2000; founders selling off stock in their own companies; and indicators only an economist might notice: the level of margin debt at brokerages reaching a 60-year high, and household debt rivaling that seen in Japan's credit-driven bubble of the 1980s.
For as credible and sweeping a history as Cassidy manages, however, I finished "Dot.con" with some misgivings, and they all come down to this: He didn't get enough California in his book. While he nails how Alan Greenspan's supervision of the Fed paced, if not fueled, the boom, and explores the intellectual influences on the Fed chairman (Ayn Rand, most prominently), Cassidy never fully understands the hackers and bankers in the 415 and 650 area codes whose ideas and desires the era also reflected. For example, he understandably chides Kevin Kelly, author of "New Rules for a New Economy," for predicting "ultra-prosperity" in Wired on the eve of dot-com destruction, but makes no attempt, as he did with Greenspan, to understand where Kelly was coming from.
Had Cassidy spent as much time in San Francisco's South Park as he did at Manhattan's 50 Broad Street, he'd have been able to give a more complete sketch of the enthusiasm for the Net that was, in many ways, betrayed by its commercial exploitation. He'd have heard from those who took juvenile delight in watching as huge corporations wasted millions on new media pipe dreams. And he'd have reckoned further with those who, well before the lure of fast money, Foosball at the office and the fear of missing out, were drunk on the sense that no one on Earth was better prepared to do what they were doing just then, for the simple reason than no one had ever built a World Wide Web before.
