How the World Got Wired · Sock Puppets and Pet Food

The Cracks

Nothing dramatic happened on March 10, 2000. There was no crash. No company collapsed. No alarming news came out. The NASDAQ closed at its all-time high, on a normal Friday, and people went home for the weekend.

On Monday, March 13, the NASDAQ opened lower.

On Tuesday, it opened lower still.

For the first few weeks, nobody panicked. Stock markets go down sometimes. It was probably just a small correction, people said. The New Economy was still real. The internet was still the future. Pets.com was still the future of pet food. The grandmothers and dentists and taxi drivers were still going to be rich.

But the slide kept going. By April, the NASDAQ had fallen 25 percent from its peak. By the summer, more. By the fall, more. The internet companies started reporting their quarterly earnings, and the numbers were ugly. The losses were not narrowing. The burn rates were not turning into profits. Companies that had promised that scale would eventually make them profitable were running out of cash before scale ever came.

One by one, the companies in the catalog above started running into trouble. Pets.com filed for liquidation in November of 2000, nine months after its IPO. Boo.com had already gone, in May. Webvan would go in July of 2001. Kozmo in April of 2001. eToys around the same time. theglobe.com a little later.

The Pets.com sock puppet was sold, at auction, to a different company that used him in commercials for car loans. He spent a few more years on television. Then he disappeared too.

For tens of thousands of employees of these companies — engineers, designers, marketers, customer service people, warehouse workers — the end was abrupt. One week they had a job and stock options that were going to make them rich. The next week, the company was bankrupt, the stock was worthless, and they were looking for work in a job market that no longer had any room for them. Many of them had bought houses and cars they couldn’t afford, because the New Economy was supposed to keep going up. Many lost their savings. Some lost their marriages.

This was the human cost of the bubble. The newspapers, having celebrated the boom, mostly did not write about it.

By October of 2002, two and a half years after the peak, the NASDAQ had fallen by 78 percent. About five trillion dollars of paper wealth had vanished.

What Was Left Behind

I have spent this chapter telling you about the companies that died. I want to end by reminding you that not all of them died.

Some companies that started in the dot-com years survived the crash. They survived because they were run carefully, because they sold something people actually wanted, and because they ran out of cash a little less quickly than their competitors. The most famous survivors are companies whose names you know: Amazon, founded in 1994, which sold books online; eBay, founded in 1995, which let people auction off used things to each other; Google, founded in 1998, which was a search engine. (Yahoo!, Google’s biggest competitor at the time, also survived, though it eventually became much smaller than Google.)

There were others. A few of them. They had been, mostly, more careful and less famous than the Pets.coms during the boom. They had grown slower. They had spent less. They had focused on actual customers and actual revenue, even when the New Economy talk was telling them to grow at any cost.

When the bubble burst, those companies — slimmer, more disciplined, and now with very few competitors — found themselves in a strange position. The economy had crashed. Everyone was scared. But the infrastructure the bubble had built — the cables on the seafloor, the fiber across continents, the data centers — was now sitting around mostly unused. The survivors could buy it, or lease it, for pennies on the dollar.

They did exactly that.

The next chapter is about three of the biggest companies whose deaths made the survivors so powerful. One of them laid cables under the oceans. One of them ran the long-distance phone network. One of them built the equipment that made the internet’s switches and routers work. All three of them, at their peak, had been worth hundreds of billions of dollars combined. All three of them, in a few short years, were gone.

What they left behind became, almost literally, the foundation of the next twenty years.

That’s Chapter 12.

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