“Most people overestimate what they can do in one year and underestimate what they can do in ten years.”
Bill’s observation about our ability to over-hype the near future and underplay the long term really holds true in bullish markets. You can see it at the moment, both in the hype surrounding next waves of computing technology (Big Data, Wearables, but still sadly not hover boards), and also in the valuations of companies currently being acquired by the “big boys” (WhatsApp being the poster child there).
But in a bear market? After a crash? Re-reading John Cassidy’s Dot.Con: Greatest Story Ever Sold it seems a different set of rules might apply. Something along the lines of “Meh. It’s all shit.”
Cassidy’s book unpicks the events leading from the foundation of the Internet, the involvement of various politicians in the establishment of the Information Superhighway (hands up if you’re old enough to remember that phrase?), through to the thing that, in retrospect, is either referred to as Web 1.0 or The Dot Com Bubble – culminating in the collapse of the market in the spring of 2000 and the subsequent challenges in the years after.
It’s fascinating as a near-historical description of events. Cassidy wrote the book in late 2001, and it was published at the beginning of 2002, just as the world was trying to make sense of the implications of the World Trade Centre and Pentagon attacks. It’s even more fascinating as a historical artefact of how moods were swinging away from the hype of the Internet in the post-burst period.
The overriding mood of the book isn’t “how crazy we were to be taken in by a stock-market bubble”, but “how crazy we were to be taken in by the Internet”. Take, for example, this scathing dismissal of Nicholas Negroponte’s Being Digital:
Negroponte appeared to be deadly serious. He predicted that within a few years The New York Times and The Boston Globe would be usurped by The Daily Me, an online newspaper that would scour the Internet for stories of interest to the individual reader. Video stores like Blockbuster “will go out of business in less than ten years,” Negroponte asserted. Michael Crichton will “make more more money selling his books direct” to readers online. And the information superhighway, while it “may be mostly hype today,” will prove to be “an understatement about tomorrow. It will exist beyond people’s wildest predictions.”
The timings might have been a little to cock, but in that seems to cover off services like Flipchart, NetFlix and Kindle. Amazingly, in the next paragraph Cassidy goes on to castigate Negroponte and the rest of the Wired magazine crowd because they
…missed the significance of the Internet. Caught up in elusive visions of telecomputers and information superhighways, they looked down on the anarchic text-based network.
Ah, the blessings of hindsight. It’s easy to sneer, just as easy as it was for Cassidy to do so at the time. And of course retrospectively looking at successful predictions is a folly – Negroponte was very wrong about a number of things in his book, in particular the importance of how new technologies would generate entirely new formats of media (I’d argue that that simply hasn’t been the case (yet)). The pain of the market collapse, however, was significantly impacting on the predictive abilities for Cassidy, who at the time was strongly of the view of the Internet as (at best) a sideline new medium.
Re-reading Dot Con has made me reflect on my own bearish tendencies. Whilst I do believe that we are living through a new tech bubble at the moment, i guess speculative bubbles are part and parcel of the lifecycle of any particular marketplace. In Dot Com times, the bubble speculation seemed to be across all sorts of shareholders (private as well as institutional) and the losses when they came were all the more significant as a result.
This time around, the speculation is in different form – corporates are either involved at an early stage with the headlong rush into incubator and accelerator-type activities, or at late stage with the enormous sums being paid by Google and Facebook in particular to acquire technology start-ups. In comparison to the last time around, there seem comparatively few big IPOs. Exit strategies for many pure tech startups are to be acquired by one of the companies that either survived Dot Com times (Microsoft, Apple, Amazon), or have emerged to positions of dominance since (Google, Facebook, Twitter).
Individuals are involved in the gold rush by starting up – the costs of entry to becoming a tech business these days are so much lower than the first time around. Cloud services from the likes of Amazon mean you can be up and running without investment in infrastructure, and that lower barrier to entry means its much easier to play in the start up world this time around.
From a technology perspective, however, what I’ve learned from Cassidy’s book is how important it is to separate the exuberance or stupidity of a bull market from the underlying long-term value of the technology. Cassidy fell into a trap that linked the two – the irrational tech stock valuations (rising and falling) was proof that the value in the underlying technology was itself irrational. Quotes that litter the book show how, looking back, that was crazy. That markets are irrational means that there is possibly little or no correlation between bubbles and what happens after. Gold is still valuable, as is technology. Tulips, however…