Blowing Bubbles

The new meme in the main­stream media is that the Inter­net is respon­si­ble for Dean’s implo­sion as a can­di­date. How­ever, with the ben­e­fit of hind­sight, was the Inter­net buzz of the 90s a real bub­ble or was the bub­ble some­thing not nec­es­sar­ily net-related?

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.