The Dot-Com Crash of 2000 and Marc Andreessen’s Act 2
The AOL-Time Warner merger in January 2000 triggers a slow deflation of the dot-com bubble, starting in March. Meanwhile, the Web's golden boy Marc Andreessen returns with a new startup.
On Tuesday, 11 January, 2000, the front page of The New York Times announced a corporate merger that seemed to confirm the internet’s cultural ascendency. “America Online Agrees to Buy Time Warner for $165 Billion,” the headline blared. Under the subhead “Internet Triumph,” the NYT noted that it “would be the biggest merger in history and the best evidence yet that old and new media are converging.”
The deal would theoretically allow AOL to offer its users professional media content, such as news from CNN and hit movies like The Matrix from Warner Bros — although it was unclear what “Internet versions” of such properties would look like. Regardless, the new combined features of AOL-Time Warner would, stated the NYT, be “more sophisticated than the Web sites, chat rooms and e-mail services that are now staples of America Online.”
At first, it was thought that the deal would further propel the “new economy” and that dot-com stocks would continue to soar. “This being the Internet age, most analysts think that the new company's benefits to shareholders will be immediate and that the deal will justify even higher valuations among already manic Web stocks,” wrote financial journalist Gretchen Morgenson that same day.
This did indeed happen…for another couple of months. But the tech-heavy Nasdaq index peaked on Friday, March 10, 2000. On that day, it had “soared through the 5,000 mark for the first time,” reported The New York Times. And then it began a long slide. By the end of 2000, the Nasdaq was at 2,470 — a more than 50% decline from its peak.
Wired: What to Cheerlead?
The dot-com bubble didn’t immediately burst; it slowly deflated over the year, and then continued deflating the following year. The internet’s chief cheerleader, Wired magazine, chose to acknowledge the downturn with whimsical humour. In its August 2000 edition, it reported on a new website called Startupfailures.com, “a Web site for dotcom flops and other busted ventures,” which had “been drawing about 2,500 visitors a day since it was launched in May.”
But Wired wasn’t about to abandon its future-oriented format. Even if the stock market was in decline, there was still plenty of would-be internet disruption to report on. For example, in the August edition, Wired wrote about an “eNewspaper” prototype by IBM. Powered by a new “digital ink” technology, the device would “start invading the turf of traditional papers in four to five years,” said an IBM spokesman.
Ironically, the hype angle to that story was provided by a Time magazine employee. One of its editors, Dan Okrent, had given a speech at the Columbia School of Journalism last December, in which he declared that “all forms of print are dead.” Wired gleefully printed the entire quote:
“Finished, over… Twenty, thirty, at the outside, forty years from now, we will look back on the print media the way we look back on travel by horse and carriage, or by wind-powered ship… as relevant to our future as the carrier pigeon.”
That kind of futuristic mumbo-jumbo was never going to disappear from the magazine. Wired found other ways to continue its tech boosterism, too — although it increasingly had to look to the staid world of enterprise software for positive stories. Luckily, one of its favourite subjects had recently turned his back on consumer software (for the time being) and re-focused it on IT departments.
Dethroned Golden Boy Returns
That month’s Wired cover story was about Netscape founder Marc Andreessen, now working on a new company called Loudcloud. Andreessen, a mere four and a half years on from his blue-jeaned, bare-footed appearance on the cover of Time, was now projecting a more sober image. Back then he was the rock star mid-twenties founder of the hottest startup in Silicon Valley.
But when Netscape sold to AOL at the end of 1998, having had its revenue kneecapped by Microsoft, Andreessen faded into the corporate background. He’d kept a relatively low profile and had exited AOL just months before it swallowed up Time Warner in January 2000.
Now he was back on the cover of Wired. Only this time he wasn’t on a throne grinning maniacally. In Wired’s August 2000 issue, he was pictured in a grey button-down shirt, clean-shaven, his strawberry blond hair neatly combed, and with only a hint of a smile on his face. “He’s 29 and leading the red-hot Valley startup Loudcloud,” stated the accompanying text.
Actually, there was nothing hot, or even remotely sexy, about Loudcloud. There was no “digital ink” type innovation to hype up and no 20th century industry in danger of being pronounced dead. In fact, Wired’s David Sheff struggled to even describe what the company did: the idea behind Loudcloud, he wrote, was to “automate the process of building and maintaining Internet sites in order to provide Web-hosting services on an unprecedented (and unprecedentedly lucrative) scale.”
These days we’d say that Loudcloud was a Software as a Service company that specialised in cloud computing. But those terms hadn’t yet been coined, so you can understand Sheff’s confusion (Andreessen would later explain that the “cloud” part of its name “was a common term in the telecom business,” but they were “five or six years too early” using it in the computer industry).
Since the technology was difficult to grasp, there was little for Wired to build a story around...except for Andreessen himself. The narrative thus became: Loudcloud was Andreessen’s “act 2” and he would “seek redemption” in Silicon Valley through it. Tales of his youthful and exciting Netscape life abound in the article, but it’s all to illustrate Andreessen’s hard-won maturity. The story equates Andreessen’s business transformation to the arc of the internet itself. In 2000, you can build a proper business on the internet, the article argues — and Marc Andreessen is here to prove it.
Sheff ends the story almost as if it’s a modern-day business fable:
“After wandering in the wilderness at AOL, he returned to a hero's welcome, drawing the smartest minds in technology to his side. And what is it he wants to build? A business. A good, safe, solid, long-lasting business — and if that sounds boring, tell it to Andreessen. He'd be happy to hear it.”
Loudcloud did indeed become a successful business over the next several years; or, at least, it managed to ride out the dot-com bust and come out the other side. To do so, it had to change its business model (pivoting from services to selling back-end software) and also its name (to the decidedly more boring OpsWare), but the company was eventually sold to Hewlett-Packard in 2007 for $1.6 billion.
So it wasn’t all doom and gloom once the internet bubble began deflating in March 2000 — some internet companies were still building value. With that said, we never heard about IBM’s “eNewspaper” technology again.
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