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David D. Kirkpatrick and Jamie Heller

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from: David Kirkpatrick

One Brief, Shining Moment

Posted Wednesday, May 24, 2000, at 5:23 PM ET

Jamie--

I always wonder what it's like to be a real-live person and sit through a movie based on your own life. I suppose being at an actual dot-com must have something of the same feel these days.

Your account of the three acts in the dot-com drama seems about right--first the pioneers, then the settlers, then the railroads. But as usual I am going to be a little bit more sanctimonious about it.

I didn't see the Super Bowl either, but I remember all the hubbub about the dot-com ads. My editor at New York, John Homans, remarked to me at the time that it was the beginning of the end, that by hyping themselves so much, a lot of e-tailers were creating enormous expectations that would be hard to fulfill. And they were making a big bet with advertising spending, turning Christmas 1999 into a make-or-break season. It turned out he was right.

But it wasn't the cheesy Pets.com sock puppet that killed the dot-com craze. It was those outrageous online stock broker commercials, like the one featuring the volunteer truck driver with a picture of his private island --"Actually, it's a country, technically"--on his windshield. It was Wall Street firms selling Internet stocks at prices based on pie-in-the-sky expectations. Or rather, it was the fact that many of those prices subsequently came down. The end of the dot-com cool didn't come until April 14, when people who bought the hype and then the stocks began to give up on Pets.com, Etoys.com, and the rest.

To me, what tarnished dot-com chic wasn't that joining an Internet startup began attracting the risk-averse people from law firms and investment banks who mistook it for a well-trod path to wealth. As long as the stocks were up and the insiders were getting rich, magazines like New York, The New Yorker, and Vanity Fair had an enormous appetite for stories about the Nerf champions of Sandhill Road, the latest lingo for Kool-Aid drinkers, how the women of iVillage decorate their apartments, or how investment bankers are starting to wear diapers to work to fit in with their new young clients. If I had written a magazine article about where you and Dave Kansas go out for drinks after a late night at TheStreet.com, I bet it would have found a publisher--as late as early April.

What was so singular about the dot-com IPO boom was that it was all things to all people--wildly lucrative and the same time creative, even revolutionary-seeming. Suddenly, every garage band seemed to be going triple platinum--without selling out! But the aura of fabulous wealth still played a big role in making the Net hip, and the sense that the easy money has ended is playing a big part in the demise of the dot-com-hipster image.

Who knows? If no one had ever figured out that you could get people to buy stock in a money-losing company because it operated online, a lot fewer people and businesses would probably be taking advantage of the Internet's potential. Still, I bet that some investors will look back and think they got taken for a ride.

You know what else, though? You're still cool to me, Jamie. Even if the money goes away and the television cameras follow suit, starting a new publication online is a pretty darn neat thing to have done. Ditto for online bookstores, auctions, travel agencies, city guides, and the rest. We might well look back on the 1997-99 period as a golden age when captains of industry were willing to bankroll all kinds of new projects that could never otherwise have gotten off the ground. Slate, for instance.

OK, this one is a little stream of consciousness--but I'm up again in the morning!

David

the breakfast table
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from: David Kirkpatrick

One Brief, Shining Moment

Posted Wednesday, May 24, 2000, at 5:23 PM ET
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David D. Kirkpatrick is a contributing editor at New York magazine who writes frequently about business and finance. Jamie Heller is editor for strategic ventures at TheStreet.com, where she's worked since its 1996 founding.
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Reader Response from The Fray--to be read after the most recent entry:


I still don't understand how the stock market can be efficient in the long term and not the short run. And I'm not relying merely on Keynes' famous sentiments about the long run; my point is even simpler: when is the long run? Was Microsoft's long run value from 1990 to early 2000 or to today? Short run volatility must have consequences for people who claim long run efficiency. To my mind, and for many other reasons, believing in efficient markets is like believing in Santa Claus--there are correlations between expected results and reality, but people really ought to grow up and accept that no-one on Wall Street knows anything.

--Jeff

(To reply, click here.)

(5/22)

To Jeff: Various natural processes are long-term efficient without being short-term efficient, for example the downhill flow of water or the process of natural selection (aka evolution). Complex human processes seem to have similar behavior. Perhaps efficient is being confused with "optimal". The problem with most strategies that attempt to be optimal is that they often have truly horrendous failure cases, which wipe out all their interim or theoretical gains. Democracy has been called "the worst form of government, except for all the rest." It is hardly optimal, and in many cases very inefficient. A dictator could get the graffiti cleaned up and the trains running on time; democracy seems to have a hard time doing such things. But what about the failure case of a less-than-benign dictator or a dictator whose benign intentions diverge from many or most of the desires of the population? An example of short-term efficiency vs. long-term, in terms of human happiness.

That's not to say short-term efficiency is bad, or that we can't improve on raw systems. But it is possible for a strategy to be the best long-term one without exhibiting short-term efficiency.

--Paul Canniff

(To reply, click here.)

(5/23)

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