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After extreme growth in the late 1990s, the tech industry crashed in March of 2000. Months later, the 9/11 terrorist attacks would alter our relationship with technology forever.
A look at the history of the internet to provide context for today's technology ecosystem. From the birth of the internet to the evolution of the hellscape that is social media today.
The invention of the HTTP protocol and the 1993 release of the Mosaic web browser popularized the World Wide Web and the internet to the average consumer. Between 1990 and 1997, households owning computers increased from 15% to 35%.
There was a special kind of exuberance in the 90s that the web created. It was extremely novel. Owning a computer went from a luxury item to a necessity.
On August 9th, 1995 Netscape Communications Corporation made an Initial Public Offering (IPO) on NASDAQ, closing at $58.25 which gave the company a value of $2.9 billion. Yahoo!, Lycos and Excite followed with successful IPOs, generating an intense interest in investing in internet companies. You might be asking yourself, what’s Netscape? Or perhaps, who cashed in on that IPO? Well, that’s Marc Andreeson.
Andreeson was the co-author of the Mosaic web browser. You could call Mosaic the first mainstream graphical web browser. There were others, but Mosaic was a hit. It was funded in part by the National Center for Supercomputing Applications, which was housed at the University of Illinois.
Where did the NCSA get their funding? Al Gore, of course. The High Performance Computing Act of 1991, also known as the Gore Bill, was responsible for creating the NCSA, which was responsible for building high speed fiber optic networks as well as the Mosaic web browser. Al Gore was of course mocked by people for claiming he invented the internet. He never made that claim, it was just a quote taken out of context. Marc Andreeson has said about the Gore Bill, “if it had been left to private industry, it wouldn’t have happened… at least, not until years later.”
Andreeson left the NCSA around 1993 with James Clark and 4 students that had worked on the Mosaic project. They started the Netscape Communications Corporation and released Netscape Navigator. A new and improved web browser. After its release, use of Mosaic declined while people migrated to Netscape Navigator.
Marc Andreessen made a lot of money through the Netscape IPO. The company’s product was effectively defunct by 2003. The company was purchased by AOL/Time Warner in 1999 and later by Verizon in 2015. In 2009, Andreessen founded a venture capital fund called Andreessen Horowitz with Ben Horowitz. Their holdings include Facebook, Foursquare, Github, Pinterest, Skype and Twitter. So, did Andreessen’s money fund the dumpster fire that we call social media?
The dot com bubble was a period of extreme growth in usage and adoption of the Internet around 1995 - 2000 that was joined by excessive speculation. Netscape kicked this off with a successful IPO. Others began lining up to go public and cash in. The NASDAQ Index peaked on March 10, 2000 before crashing. It went from 5046 to 1114, a 78% loss in value. The crash lasted from March 11, 2000 until October 9th, 2002.
The exuberance of getting rich quick brought about a lot of startups. It was a gold rush. Companies and products would be created on the basis of a domain name. Every gold rush has winners and losers. Marc Andreessen is worth almost $2 billion. While his VC fund has backed some losers, he has backed quite a few winners.
During the bubble, venture capital was easy to raise if there was a .com in the company name. Valuations were based on earnings and profits that would not occur for several years if the business model actually worked. Companies that had yet to generate revenue or profits went to market with IPOs that saw their stock prices triple in one day. Some of those companies didn’t even have an actual product.
The hustle was in brands. Most dot-com companies spent heavily on advertising and promotions to harness network effects to build market and mind share as fast as possible. In 2000, Super Bowl XXXIV (34) had 16 dot-com commercials. Each commercial cost $2 million for a 30-second spot. If you’re spending millions of dollars on advertising and you aren’t making a profit, something might be off. If you’re spending millions of dollars on advertising and you haven’t generated revenue, something is not right. If you’re spending millions of dollars on advertising and you haven’t made an actual product, something is rotten.
Why did it take so long for investors to realize they were in a bubble? One theory was Y2K. In the years leading up to the turn of the millenium, there was a genuine fear that the computer and banking systems would break due to the way the machines stored dates and times. Basically, some programmers had practiced efficiency by assuming that a year could be held with 2 digits and not 4. So when the year 2000 came along at the turn of the century, we would essentially turn back the clock to the year 1900.
That fear fueled a lot of spending in technology, so perhaps it seemed like a good investment. By February of 2000, we knew that the Y2K bug was not a problem. That same month, Alan Greenspan, the chairman of the Federal Reserve announced an aggressive raise in interest rates. On March 10th, NASDAQ peaked at 5048.62. 3 days later, Japan entered a recession. 2 days later on March 15, Yahoo and Ebay ended merger talks. Investors started shifting to established stocks. This was the signal the period of free money had ended. On March 20th, Barron’s featured a cover article predicting the imminent bankruptcy of many internet companies.
On April 3rd, Microsoft was found in violation of the Sherman Antitrust Act and guilty of monopolization. Microsoft shares plummeted 15% in one day. That also caused the NASDAQ index to drop 350 points (or 8%). By April 14, NASDAQ was down 25% from the start of the week. It took until November of 2000 for things to really go south. Most internet stocks had declined by 75% from their highs, which wiped out about $1.75 trillion in value.
Then there was 9/11. An event that profoundly changed American’s sense of security. It was followed by high profile accounting scandals from Enron, Worldcom and Adelphia.
I was in college at this time. While most of America seemed to be paralyzed by fear, for about a month after the terrorist attack, the world actually felt kinder to me. It was little things. I said hello to many more people and they said hello back. People didn’t cut in lines, they were more aware of their surroundings. But the accounting scandals, those were not kind.
I understand the desire to make a profit. Enron manipulated the energy market and caused power shortages in pursuit of profits. That’s immoral. The state was saddled with more debt. Jobs were lost. Those power shortages affected countless numbers of people’s livelihoods.
After the terrorist attacks, we invaded Afghanistan and then Iraq. Americans gave the government immense surveillance powers using the internet, and most Americans had no idea of just how much privacy they were giving up. The Patriot Act was passed in a moment of fear and soul searching. It’s probably why Section 215 wasn’t seen as a big deal. Section 215 allows the government to order the turnover of telephone, email and financial records without a court order. Furthermore, the reasons why the order was granted doesn’t have to be disclosed. Does that seem rational?
The USA Freedom Act was signed into law by President Barack Obama and enacted on June 2nd, 2015. It restored the modified form of several provisions of the Patriot Act which had expired the day before. Section 215 was amended to replace bulk metadata collection with call detail records known as a CDR.
A significant change in Section 215 was that the government cannot collect CDRs generated by any provider in bulk. The government has to use a targeted number. That’s a significant change, but the government can still see telephone, email and financial records without a court order. It just can’t do it in bulk. We did this to feel safe.