By Doug Criner

I received notice, in late 2001, that my remaining subscription to The Industry Standard, a weekly magazine covering the "Internet economy" that ceased publication about six months earlier, would be fulfilled by a subscription to Fortune, that buttoned-down chronicler of what was once called the "old economy," but now just "the economy." Was this turn of events predictable? Were there signs that might have warned us of this?

The Vocabulary is Telling

I hear radio commercials, selling self-help training, that warn that one’s vocabulary can be a tip-off to our breeding or lack thereof. Perhaps the vocabulary of the internet economy might have been taken as a warning. For example, start-up companies referred to their monthly "burn rate"—the rate they depleted their cash and, presumably, their net worth. How many successful business persons use that jargon?

And then there was reference to each "round" of venture capital funding. For example: "In February, XYZ.com completed its third round of financing." Did the first-round financiers fully contemplate that there would need to be a stream of others? What happened to the idea of starting a business in the garage, on a shoestring and a second mortgage on the family house, until there’s a stream of revenues and earnings?  (I say "garage" since people in California don't have basements, and I want them especially to get my point.)

Some financiers were called "angels." These were particularly valued by the start-ups, since they didn’t approach their investments as would a jaded business person, but rather as a true believer, dazzled by the start-up’s technology, and as a patron of the firm's glib, ever-confident founder.

New companies were not founded or established; they were launched, calling to mind some kind of ballistic process accompanied by great fanfare.  A common marketing approach employed successfully by "Old Economy" companies is to emphasize their longevity and, therefore, their stability and reliability–e.g., Smucker's jelly jar label proclaims, "Since 1897."  But the baby-faced dot-commies proudly insisted on calling their corporate creations start-ups.  How much customer confidence is engendered by that appellation?

The Role of Colleges

A few years ago, I attended an undergraduate student awards ceremony at my alma mater’s department of electrical and computer engineering. Almost every award recipient, in their acceptance remarks, announced that his or her goal was, upon graduation, to establish a start-up company as soon as possible and move toward the brass ring, the Initial Public Offering. Was this very realistic for people that I suspect had never even had a paper route? If so, where were all the hot-shot engineers going to come from that these budding entrepreneurs would hire, for a salary, to do the actual work?

Our schools of engineering and technology are not exactly blameless in this sad spectacle.  Faculty, not to be outdone and out-earned by their ingrate students, were encouraged by college administrators to add entrepreneurship to the three traditional prerequisites for academic success:  research, publications, and teaching.  Universities, not known for their business acumen, created and subsidized on-campus facilities and support staffs, called business "incubators," to encourage professors to start their own start-ups.

Old-Line Companies Get Stiffed, too

Big, well established companies jumped on the bandwagon.  Near the end of the Internet cycle, Jack Welch of General Electric was taught by a family member, I think his wife at the time, how to get online.  In a flash, Neutron Jack perceived the great potential of the Internet and issued directives to all parts of G.E. to transform their businesses accordingly.  I wonder how many G.E. staffers quietly rolled their eyes at that directive.

Other old-line companies fell victim to internal mavericks, seeking to be set up in business to embark upon some tech-related venture.  The oft-cited prototype was Lockheed's "Skunk Works," set up outside the corporate organization with a blank government check, tasked to develop a new spy plane.  The amount of money squandered on these efforts is inestimable.

Long after the Internet was fully developed and in use, politicians and news writers began trumpeting something called the "Information Superhighway" that would somehow transform society as we know it. (I capitalize these terms in deference to my Microsoft spell checker, which insists that "Internet" be capitalized–even though other important inventions, such as "telephone" or "light bulb," are not capitalized.) 

Even today, what the Information Superhighway was envisioned to entail remains a mystery.  If it was just the Internet itself, then why invent a new name for it?  Maybe it was part of the notion of having computers in every classroom, or an idea of Al Gore, the self-proclaimed inventor of the Internet, to implement an enhanced version of the Internet.  In any case, it was implicit that building the Information Superhighway would involve some sort of major government program–perhaps comparable in scale and importance to the real superhighway system, the uncapitalized one that vehicles travel on, constructed back in the 1950s.

Blame it on Netscape

Netscape is given credit for developing the first Internet browser, and thus enabling the dot-com era.  Well, that isn't exactly true.

The first popular browser, Mosaic, was made available free by the University of Illinois at Urbana-Champaign.  One of the developers of Mosaic, Marc Andreesen, graduated in December 1993 and moved to Silicon Valley.  Five months later, Netscape Communications was founded and began offering a spiffed-up Mosaic browser under its own brand name.  Fast forward another 16 months, to August 1995, and Netscape went public and promptly valued by the stock market at $3.5 billion.  In 1999, long after Microsoft's browser ascendancy over Netscape was obvious, AOL acquired Netscape for $4.3 billion.

Since both Netscape and AOL are essentially worthless entities today, it follows that a group of people was fleeced out of $4.3 billion.  But the conspicuous process of that fleecing, glowingly reported by mesmerized television and print pundits, and the unjust enrichment of a few, spurred the Internet economy–not just the availability of the Netscape browser.

The get-rich-quick scheme demonstrated by the Netscape saga heralded the dot-com mania, much like the discovery of gold at Sutter's Mill sparked the 1849 gold rush.  Both events, centered in California, provided little contribution to Mankind.  Most of the gold was squandered by the Forty-Niners in saloons and brothels.  Ultimately, some of that very gold probably wound up on the pinkies of some Internet entrepreneurs and associated high rollers.

Chairman Greenspan, Take a Bow

If you missed any of these signals, maybe you were fooled by Alan Greenspan, the former Fed chairman who discounted many economic worries associated with the Internet bubble by pointing to the productivity increases accruing from the technologies of the new economy. Well, just exactly what are those productivity increases?

Certainly, PC-based word processing is handy and I couldn’t live without e-mail. In my own field of engineering, computer-aided drafting, CAD, has been universally embraced, and the green-eye-shaded drudges that once did our drafting and much of our design have been replaced by young, computer-oriented CAD-station operators. Yet we cannot seem to take our productivity gains to the bank, much less get our work done in fewer manhours.

In the wrong hands, digital technology can actually decrease productivity. How much time at the office is idled away, browsing the Internet? Some computer games have a panic key that instantly brings up a dummy spreadsheet—a handy feature if the boss sticks his head into your cubicle.  Indeed, on this website, which is not exactly work-related, a large majority of hits come during working hours from domains and hosts that appear to be those of employers.

In the mid-1980s, a prominent Kansas City banker, confronting increasing default rates on business loans, blamed the "promoters" (who like the poor, will always be with us), then newly armed with PC-based spreadsheet programs and color printers, ginning up impressive-looking business plans.

Are we now on the verge of a reprise of the Dot-Com spectacle?  Time will tell whether Google or even Microsoft will justify their astronomical multiples.

But hey, I’m just an engineer, what do I know? I will wager that I know more about computers and the internet than Alan Greenspan.

© 2006 Doug Criner