OUR CONTRARIAN QUESTION:

What important truth do very few people agree with you on?—is difficult to answer directly. It may be easier to start with a preliminary: what does everybody agree on? “Madness is rare in individuals—but in groups, parties, nations, and ages it is the rule,” Nietzsche wrote. If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth.

#Consider an elementary proposition: 

Companies exist to make money, not to lose it. This should be obvious to any thinking person. But it wasn’t so apparent to many in the late 1990s when no loss was too significant to be described as an investment in an even bigger, brighter future. The conventional wisdom of the “New Economy” accepted page views as a more authoritative, forward-looking financial metric than something as pedestrian as profit:

Conventional beliefs only ever appear arbitrary and wrong in retrospect; whenever one collapses, we call the old view a bubble. But the distortions caused by bubbles don’t disappear when they pop. The internet craze was the giant bubble <incc the crash of 1929, and the lessons learned afterward define and distort almost all thinking about technology today. The first step to thinking clearly to question what we think we know about the past,

A QUICK HISTORY OF THE ’90S

The 1990s have the right image. We tend to remember them as a prosperous, optimistic decade that happened to end with the Internet boom and bust. But many of those years were not as cheerful as our nostalgia holds. We’ve long since forgotten the global context for the 18 months of dot.com mania at the decade’s end.

The ’90s started with a burst of euphoria when the Berlin wall came down in November ’89. It was short-lived. By mid-1990, the United States was in recession. Technically the downturn ended in March ’91, but recovery was slow, and unemployment continued to rise until July ’92. Manufacturing never fully rebounded. The shift to a service economy was protracted and painful.

1992 through the end of 1994 was a time of general malaise. Images of dead American soldiers in Mogadishu looped on cable news. Anxiety about globalization and U.S. competitiveness intensified as jobs flowed to Mexico. This pessimistic undercurrent drove then-president Bush 41 out of the office and won Ross Perot nearly 20% of the popular vote in ’92—-the best showing for a third-party candidate since Theodore Roosevelt 1912. And whatever the cultural fascination with Nirvana, grunge, and heroin reflected, it wasn’t hoped or confidence.

Silicon Valley felt sluggish, too. Japan seemed to be winning the semiconductor war. The internet had yet to take off, partly because its commercial use was restricted until late 1992 and partly due to the lack of user-friendly web browsers. To most people on campus, the tech sector seemed idiosyncratic or even provincial.

The internet changed all this. The Mosaic browser was officially released in November 1993, giving regular people a way to get online. Mosaic became Netscape, which released its Navigator browser in late 1994. Navigator’s adoption increased—from about 20% of the browser market in January 1995 to almost 80% less than 12 months later— that Netscape was able to IPO in August ’95 even though it wasn’t yet profitable. Within five months, Netscape stock had shot up from $28 to $174 per share. Other tech companies were booming, too. Yahoo! went public in April ’96 with an $848 million valuation. Amazon followed suit in May ’97 at $438 million. By the spring of ’98, each company’s stock had more than quadrupled. Skeptics questioned earnings and revenue multiples higher than those for any non-internet company. It was easy to conclude that the market had gone crazy. This conclusion was understandable but misplaced. 

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