How the World Got Wired · The Day Everything Tipped

Why It Mattered

I have spent two pages on a single trading day, and you might be wondering why. The story I just told you is, on the surface, just one company going public. Companies go public every week. Most of these stories are boring.

Netscape’s IPO mattered for a reason that took most people a few years to fully understand. It rewrote the rules of how technology companies were valued.

Until that day, the standard belief on Wall Street had been that a company should earn profits before going public. You built a business. You made it work. You showed several years of growing revenue. You showed actual money coming in. Then you sold shares of yourself to investors who could see the numbers and decide what they were worth.

Netscape had none of that. It had been operating for sixteen months. It had never made a single dollar of profit. The product it sold — a web browser — was something most professional investors had never used and could barely describe. By every traditional rule, Netscape was much too young, much too unprofitable, much too speculative to go public.

The market did not care.

The market — meaning the millions of buyers around the world placing orders — had decided that what mattered about Netscape was not its current profits but its possible future. Netscape sold the browser most people used to look at the web. The web was growing very fast. Whoever owned the dominant browser, the buyers reasoned, would own a piece of whatever the web turned into. That piece, in the future, would be worth a great deal of money. So the buyers were willing to pay, today, for what Netscape might become tomorrow.

This was not, in itself, a crazy way to think. People bet on the future all the time. But it was a new way for the stock market to think about technology companies. And it opened a door.

Once Netscape had proven that a young, unprofitable internet company could go public and become worth billions of dollars in a single day, every other young, unprofitable internet company began to wonder: why not us?

Why not us, said the founders of an online bookstore called Amazon, founded the year before.

Why not us, said the founders of an online auction site called eBay, founded that very year.

Why not us, said the founders of a thousand other companies, most of which you have never heard of, most of which would not exist five years later. Companies that sold pet food online. Companies that sold groceries online. Companies that sold furniture online. Companies that didn’t sell anything specific, but had a great idea, and a Web site, and a name that ended in .com.

For the next five years, money poured into anything that called itself an internet company. Most of it was lost.

You’ll hear about that in the next chapter.

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