How the Internet Happened by Brian McCullough
Highlight [page 8]: Almost a decade into the PC era, the industry remained trapped in the paradigm of the “command line.” If you sat in front of a computer, you would see a blinking cursor and would need to type something to make the machine do anything for you. What would you need to type? Well, see, that’s the point: it was functional inscrutability that continued to make computers so abstruse. In the era of the command line, you almost needed to have read the manual coverto-cover or have previously mastered a computer language even to use the damn things. You had to know how to use a computer before you could use a computer
Highlight [page 8]: This problem was solved by the invention of the GUI, or graphical user interface. Computers were humanized by graphics, by colors, by friendly icons and drop-down menus and a cute little tool called a mouse.
Highlight [page 8]: . By 1990, only 42% of U.S. adults said they used a computer even “rarely.” 1In that same year, the number of American households that owned a computer had not yet passed 20%
Highlight [page 9]: Computers were first hooked together in a meaningful way in 1969. This was the ARPANET, the grandfather of the Internet, and (mostly) true to legend, it was birthed by a Cold War–era alliance of the United States military and the academic-industrial complex. Funded by DARPA, the Defense Advanced Research Projects Agency, the Internet’s first four connections, or “nodes,” were all at academic research centers: the University of California, Los Angeles; the Stanford Research Institute; the University of California, Santa Barbara; and the University of Utah.
Highlight [page 10]: It is well known that Tim Berners-Lee invented the web while he was employed at CERN, the great multinational scientific research institution in Switzerland. As the Internet was born in the midst of a great scientific effort to win the Cold War, the web was born in the midst of a great scientific effort to reveal the secrets of the Big Bang
Highlight [page 12]: N etscape Communications Corporation held an initial public offering, or IPO, on August 9, 1995.
Highlight [page 12]: Over the course of the day Netscape, with the ticker symbol NSCP, reached $75 before ending the day at a respectable $58.25. Netscape had only existed as a corporation for sixteen months. Since its inception, it had generated revenues of only $17 million. It had nothing in the way of profits on its balance sheet. But at the end of trading that day, the stock market valued the company at $2.1 billion.
Highlight [page 14]: By 1992, when the superfast T3 network was launched as the successor backbone for the Internet
Highlight [page 15]: n November 1992, there were only a few dozen WWW servers in the world. By the end of that same month, one of them happened to be at the NCSA, courtesy of Marc Andreessen. 8On November 16, 1992, Andreessen showed up in the WWW-Talk message group for the first time, joining the various conversations about HTML, web servers and web design and generally volunteering to pitch in on the grand project of moving the web forward
Highlight [page 18]: WITHIN EIGHTEEN MONTHS, Mosaic was the biggest thing on the web, and probably the biggest thing on the Internet at large. In January of 1993, shortly after Mosaic launched, the number of websites in existence was in the hundreds. By the end of 1994, the number of websites in the world had passed tens of thousands. 13In a similar time frame, the number of web hosts had risen tenfold. 14I
Highlight [page 18]: On February 25, 1993, mere weeks after Mosaic’s initial beta launch, Andreessen was on the WWW-Talk message boards making a proposed addition to HTML of an “inline” image tag that would allow for images to be coded directly into web pages. Prior browsers opened images—and really any non-HTML file type—as a separate window. Inline images would make web page design more akin to the page layout of a magazine or newspaper.
Highlight [page 19]: Mosaic had become the most successful project in computer science by leaving the computer scientists behind and appealing to the mainstream. Fortune magazine named the Mosaic browser one of its products of the year (alongside the Wonderbra and Mighty Morphin Power Rangers), writing, “This software is transforming the Internet into a workable web . . . instead of an intimidating domain of nerds.”20
Highlight [page 21]: The short but sharp recession of 1990–91 hit the technology industry hard. PC shipments fell by 8% in 1991, the first such drop in recorded industry history. 26 “I thought I had missed the whole thing,” Andreessen would later say of his arrival in California. “The overwhelming mood in the Valley when I arrived was that it was done. The PC was done, and by the way, the Valley was probably done because there was nothing else to do.”2
Highlight [page 31]: Brief History of the Future: From Radio Days to Internet Years in a Lifetime
Highlight [page 36]: Significantly, the Netscape story wasn’t all hype. In eighteen months, Navigator reached an installed base of 38 million users. 66From $17 million in revenue at the time of the IPO, Netscape would surge to $346 million in sales the very next year, 1996, and $533 million in 1997. 67In three years, Netscape grew revenue to levels that it had taken Microsoft almost fourteen years to reach
Highlight [page 39]: At least at first—and to Netscape’s great relief—Bill Gates was not even remotely paying attention to the Internet. Almost all of Microsoft’s resources were at that point being marshaled toward the development of a program codenamed “Chicago,” the greatest update to Microsoft’s operating system to date. Better known as Windows 95, this release would represent the absolute pinnacle of Microsoft’s primacy in the tech industry
Highlight [page 40]: TVs were going to become interactive. More than a decade before our phones got “smart,” the tech gurus and the big-money guys were convinced that televisions would become “smart” and that would be the innovation that would really change everything
Highlight [page 48]: So, Microsoft did what it had to do: it cut corners. Having lost BookLink to AOL and having been rebuffed so arrogantly by Netscape, Microsoft was forced to turn to the most logical remaining choice: Spyglass, Inc., the company approved by the University of Illinois to commercialize the original Mosaic web browser. Microsoft signed a $2 million licensing agreement with Spyglass to use Mosaic code for Windows 95. Irony of ironies, the code that would be the basis for Microsoft’s web browser (and the weapon Microsoft would soon wield against Netscape) was a descendant of the same code written by Marc Andreessen and Eric Bina a few years before at the NCSA.
Highlight [page 48]: When Windows 95 finally launched on August 24, 1995 (two weeks after the Netscape IPO), it was possibly the largest product launch in history. Computer stores around the world opened at midnight and lines of eager customers queued up to be the first to nab a copy of the program. Comedian Jay Leno joined Bill Gates onstage to emcee the official launch event. (“To give you an idea of how powerful Windows 95 is,” Leno
Highlight [page 49]: joked, “it is able to keep track of all of O.J.’s alibis at once.”) 24In New York, the Empire State Building was lit up in the colors of the Windows 95 logo. And famously, the Rolling Stones were paid a reported $14 million for the use of their song “Start Me Up” in Windows 95 commercials. All in all, Microsoft spent around $300 million making sure that Windows 95 was a blockbuster
Highlight [page 54]: A monthly fee entitled users to a fixed number of usage hours per month. If a user went over the monthly limit, they were charged by the hour. On AOL, $9.95 a month got you five hours of unlimited access; each additional hour cost $2.95. 8Once you hung up, the connection was terminated. The sounds of first a phone number being dialed, and then the harsh crackle and hiss of the modem making a connection to the network, became a ubiquitous noise across America in the 1990s. To this sound, America Online added friendly touches: “Welcome,” “You’ve Got Mail,” and when the connection was terminated, “Goodbye.” The voice was that of Elwood Edwards, a broadcaster and the operations manager of WFTY-TV in Washington, D.C., who was paid $100 for his trouble
Highlight [page 55]: It’s a well-established notion in business theory that sex often drives the lifecycle of new technology adoption, the most famous example being the way porn movies brought VCRs into America’s living rooms. It’s safe to say that the popularity and growth of AOL was driven by sexy chat. Lots and lots of sexy chat.
Highlight [page 55]: AOL has often been described as training wheels for the Internet.
Highlight [page 61]: Starting at 4 A.M. on August 7, 1996, AOL’s services went down for nineteen hours. 34The outage made front-page news around the country and made AOL the butt of jokes on late-night talk shows. For AOL, it was a major public relations black eye, but at the same time, a validation of how important the service had become in a few short years. This wasn’t just an early adopter’s playground anymore; AOL was how Americans were increasingly living their online lives every day. Imagine the chaos that would occur today if there were no email, no web, no anything online for nineteen straight hours. The Internet itself hadn’t crashed, but America’s ability to access it had. Suddenly, that was a big deal. The service outage came on the same day that NASA announced the discovery of indications of water on Mars, but AOL was the lead story on CNN
Highlight [page 64]: The entrepreneur and venture capitalist Chris Dixon has remarked that “the next big thing always starts out dismissed as a ‘toy.’ ” 1This is very often true with Internet technologies; a new site or a new tool can, on first encounter, seem gimmicky
Highlight [page 80]: With millions of users already familiar with Yahoo and tens of millions of “newbies” on their way, becoming the first Internet brand would be invaluable. Karen Edwards was brought on to direct Yahoo’s marketing efforts
Highlight [page 81]: 0By 1998, Yahoo was better known to the average consumer than even Microsoft
Highlight [page 82]: Yahoo had taken things to the next (more speculative?) level. But investors had shown that they were willing to invest in unprofitable young web companies as long as they could show growth. Yahoo would be okay as long as it could show continued audience growth and as long as it could find a way to monetize that audience. One day. Preferably soon.
Highlight [page 84]: “There was a land grab,” a Yahoo marketing executive would remember. Yahoo was perfectly positioned to take advantage as Internet mania took off. “It was no one’s fault, but lots of companies were overinvesting and trying to grow too fast. It’s hard to blame Yahoo for that—but sure, we were right there taking the money.” 36By 1997, the online advertising market neared $1 billion, and Yahoo alone was estimated to control 7.5% of the total. 37Yahoo’s advertising base shot to 1,700 brand clients. These advertisers were chasing traffic that had skyrocketed to an astounding 65 million pageviews per day. And all of this led to a proportionate 257% rise in revenues to $70.4 million. 38Yahoo’s stock rose accordingly, jumping 511% over the course of 1997. The company at that point had a market value of almost $4 billion
Highlight [page 84]: Yahoo was bigger than Netscape. But unlike Netscape, which remained a traditional software and business services company, Yahoo was a web-only company, a web-native company, a company that would never have existed if the web had never been invented.
Highlight [page 85]: the Secure Sockets Layer technology developed by Netscape made actual transactions possible on the web; no need for 1-800 numbers or customer service reps to take the orders
Highlight [page 85]: Indeed, perhaps the longest-lasting legacy of Netscape Navigator setting the standard for the early web is that, to this day, SSL, via its descendant, TLS, enables the vast majority of online commercial transactions worldwide
Highlight [page 86]: Pioneers of new technologies are rarely the ones who survive long enough to dominate their categories; often it is the copycat or follow-on names that are still with us to this day: Google, not AltaVista, in search; Facebook, not Friendster, in social networks. But in a case of the exception proving the rule, the company that broke the most ground in what would be known as ecommerce is still the company that dominates today: Amazon
Highlight [page 87]: It seems that in the course of his research, Bezos, like Jim Clark, was bowled over by the sheer growth numbers he encountered. He ran across some data by an analyst who claimed that the amount of bytes transmitted over the web from January 1993 to January 1994 had increased roughly 205,700%. 4As Bezos himself later pointed out, “Things just don’t grow this fast outside of petri dishes.”5
Highlight [page 87]: he well-worn legend is that Jeff Bezos and his wife MacKenzie packed up their car and headed west, unsure of where they were going, with Jeff typing up a business plan on his laptop as they drove and phoning angel investors along the way on his cell phone. But the truth is, Bezos had already flown out to California to recruit software engineering talent. And according to multiple accounts, he likely knew the destination of his cross-country car trip would be Seattle. His careful research had shown him that Seattle had the advantage of being a tech hub—home to Microsoft of course, and thus filthy with tech talent—and also that it was a six-hour drive from a major warehouse that book distributor Ingram operated in Roseburg, Oregon. Also, Washington State was not nearly as populous as California. No doubt, his research had also led Bezos to realize that a company did not have to charge sales tax unless it had a physical presence in the state a customer ordered from. So, Washington being less populous than California was a major plus. Other locations Bezos considered for the benefits of tax purposes were Portland, Oregon; Boulder, Colorado; and Lake Tahoe, Nevada
Highlight [page 88]: Finally, Bezos himself settled on Amazon. As he would later say, “This is not only the largest river in the world, it’s many times larger than the next biggest river. It blows all the other rivers away.” 9The earth’s biggest river; the earth’s biggest bookstore. The domain name was registered on November 1, 1994
Highlight [page 89]: Many, if not most, of the early customers phoned in their credit card numbers, not trusting the online transactions to be safe. “Some people would even just email their full credit card number to us,” says Kaphan, “as if that was somehow more secure than entering it in a form on the web.” 13To make sure that the orders were secure from hackers, credit card numbers were recorded on one computer, copied to a floppy disc and then physically walked to a second computer, which would batch the transactions. This was known within Amazon as sneakernet. The sneakernet system was eventually retired, but as Kaphan notes, “It was quite a while, actually, before we had enough business to justify a full-time connection to a credit card processor
Highlight [page 91]: In later SEC filings, we can see that despite steadily growing sales, by the end of 1994, Amazon lost $52,000. In its first full year of operations, 1995, Amazon was able to sell half a million dollars’ worth of books, and yet it was still in the red to the tune of $303,000. 16And that brings us to the question of financing, which, if you’ll notice, we haven’t really mentioned up until this point. That’s because for as long as he possibly could, Bezos was determined to self-fund the business. Drawing from the money he had socked away over his years on Wall Street, as well as with a mixture of credit card loans and personal guarantees, Bezos was able to fund the company through early development. In the summer of 1995, in the name of her family trust, Jeff’s mother, Jackie, invested $145,000 in the company, a literal friends-and-family round. But that wouldn’t be enough to keep the lights on very much longer
Highlight [page 93]: In November of 1996, Amazon moved again, into new digs in South Seattle, across the street from a pawn shop and a strip club that advertised “12 beautiful women and one ugly one.” 22This new building housed a proper distribution facility, boasting 93,000 square feet of space. 23This move coincided with the hiring of Oswaldo-Fernando Duenas, a 20-year veteran of FedEx who was the first person at Amazon with extensive logistics and warehousing experience. Also around this time, roughly the fall of 1996 through the spring of 1997, Amazon hired veterans of Kraft Foods and Symantec to handle marketing, an ex-Microsoft engineer, brought in to handle product development, and an executive from Barnes & Noble to head business expansion
Highlight [page 94]: Very smart people looked at the competitive situation and declared that Amazon was doomed. In September of 1997, Fortune magazine had a story with the title “Why Barnes & Noble May Crush Amazon.” In the article, the author posited, “Anything Amazon.com can do on the Internet, so, too, can Barnes & Noble.” 26Famously, Forrester Research released a report in early 1997 entitled “Amazon.toast.”2
Highlight [page 95]: It seems that at some point between researching the web at D. E. Shaw and the Kleiner Perkins investment, Jeff Bezos convinced himself ecommerce really was a markedly superior way of doing business. Like Andreessen and Clark at Netscape, Bezos saw the horizons on the Internet as being unlimited. Time and again, in several different interviews and speeches, Bezos would talk of how this was “day one” of the Internet revolution. Bezos believed Amazon had a chance to not only establish ecommerce as a viable proposition, but also to disrupt the entire system of buying and selling everything. Bezos wasn’t just thinking about books, but about retail itself, a business model that went back millennia to that first day merchants gathered in a central location to hawk their goods to a local population. In Bezos’s vision, the products would come to the people. First books, then anything else. In the end, he would make the everything store a reality
Highlight [page 95]: Amazon launched its music store in June of 1997 and its movies store in November of 1997. 35A mere 120 days after launching the music store, Amazon.com could claim to be the largest online seller of music
Highlight [page 97]: Silicon Valley came into being in the 1960s and 1970s. Cold War–era defense-and space-research spending seeded the technology industry in the Valley, while the nearby counterculture havens of Berkeley and San Francisco infused flower-power thinking among the denizens. So, Silicon Valley has always been equal parts egghead libertarianism and acidtinged hippie romanticism
Highlight [page 98]: On the Friday night before Labor Day weekend in 1995, Omidyar holed up in his home office on the second floor of his town house and began writing code for his auction idea. By the end of the long weekend, he had cobbled together a crude website that allowed users to do three simple things: list items for sale, view items that were on sale, and place bids on those items. He hosted the site on his home server and published it to the web via his $30-a-month account with a local ISP. He called the site AuctionWeb. But he hosted it as a subsite on his personal webpage, ebay.com. So, the URL was ebay.com/aw.
Highlight [page 98]: Why eBay? Well, after cashing out from the eShop sale, he had done some web consulting and freelance work and decided to do so under the rubric Echo Bay Technology Group, a name he simply liked. However, the domain EchoBay.com was taken, so he registered what he considered to be the closest approximation: eBay.com
Highlight [page 100]: Soon AuctionWeb was more than just nominally profitable. Very quickly, it became meaningfully lucrative, especially for one man and his hobby. In March of 1996, revenues hit $1,000. In April, $2,500. And in May, $5,000. Revenues would double again in June, surpassing $10,000. Omidyar had a revelation. “I had a hobby that was making me more money than my day job,” he recalled. “So I decided that it was time to quit my day job.”5 and Note [page 100]: Surprisingly eBay and yahoo both started as side projects
Highlight [page 103]: This is a key evolution. In so many ways, over the last twenty years, the web and the Internet have slowly trained all of us to get comfortable interacting with crowds and, often, crowds of strangers. eBay was one of the first websites to show that a largely anonymous community, carefully constrained by a few guidelines and regulations, but invested in a system of online reputation, could actually work. Today, this key ingredient of ratings and reputation continues on sites like Yelp and Reddit—and especially on sites like Uber and Airbnb. It’s hard to imagine that the current sharing economy could even exist without the reputation template that eBay pioneered
Highlight [page 105]: And eBay embraced its image as the hobbyists’ mecca. Many people are familiar with eBay’s founding myth: how Pierre Omidyar created the site so his fiancée could expand her Pez dispenser collection. But like many company creation stories, the Pez story is a fiction. The Pez story was created by Mary Lou Song to get reporters interested in covering eBay’s role in the collectibles phenomenon. As she put it later, “Nobody wants to hear about a thirty-year-old genius who wanted to create a perfect market. They want to hear he did it for his fiancée.”12
Highlight [page 105]: eBay instead found joy by going the technology VC route. In June 1997, Benchmark Capital paid $5 million for 21.5% of eBay. By various measures, this deal would go down in history as one of the greatest investment home runs of all time. Benchmark’s stake in eBay would eventually be worth $4 billion. 15
Highlight [page 113]: Hotmail.com launched on the web on July 4, 1996. In little more than a year and a half, Hotmail would claim 25 million users. 32At the time, this meant that Hotmail was actually the fastest-growing web thing in history. Such phenomenal growth was the result of a clever marketing tactic. Every time a user sent an email using Hotmail’s free web mail accounts, a small link was appended at the bottom that read: “Hotmail: Free, trusted and rich email service. Get it now.” So, every time an email was sent, the sender was promoting Hotmail’s service. The very act of using Hotmail helped spread the word about Hotmail. This kind of practice is now called viral marketing, the technique of promotion by rabid user word of mouth
Highlight [page 115]: n order to make it easier for small merchants to set up shop in its mall, Yahoo purchased a company called Viaweb from a young British programmer named Paul Graham. By the holiday season of 1998, more than 3,000 different storefronts had opened shop, with Yahoo raking in monthly fees and a percentage of every sale
Highlight [page 117]: There were some quite notable hiccups along the way, but from 1982 until the turn of the century, the market closed up, year-on-year, almost every single year. Even after the Black Monday crash in 1987, when the Dow lost 22% in a single day, investors who held on through the crash had more money on December 31, 1987, than they had on January 1, 1987
Highlight [page 117]: A Short History of Financial Euphoria
Highlight [page 118]: Even though companies like Yahoo, Amazon, eBay and others were formed largely in the two years between 1994 and 1996 (and generally went public in the two years after that), it wasn’t until 1998 that the stock prices of dot-com companies began to demand attention. It took a while for dot-com stocks to stand out because, again, at the time, seemingly all of Wall Street was doing well. Everything was already inflated. A traditional old-economy stock like General Electric was trading at forty times earnings. 4During the time period from Netscape’s IPO in August of 1995 to the beginning of 1999, shares of traditional blue-chip companies like, say, Procter & Gamble, doubled. Not a bad return in only forty months. So, at first, Internet stocks didn’t seem all that exceptional
Highlight [page 118]: Turning a $2,000 investment into $77,000 is phenomenal on any time scale, but to do so in less than thirty months is unheard of. And the funny thing was, getting this sort of return wasn’t exactly rocket science. In the twelve months of 1998, Yahoo stock returned 584%, AOL 593% and Amazon 970%. 5
Highlight [page 119]: . Books like Ray Kurzweil’s The Age of Spiritual Machines promised that technology might help us transcend death itself. Bestsellers like The Long Boom and Dow 36,000 made the argument that technological advances were enabling a structural shift that would kick the global economy into a new, higher gear, almost unfathomable to contemporary minds.
Highlight [page 119]: . Early in the decade, CNBC had been an unprofitable, poorly watched channel on deep cable, the dorky, boring relation to CNN. But in late 1993, Roger Ailes took over the channel and transformed it. Taking his cue from the way that ESPN covered sports, especially with its SportsCenter franchise, Ailes began populating CNBC with winning personalities who covered the stock market the way a sports anchor might cover a bowl game
Highlight [page 124]: All told, approximately 50,000 companies would be founded between 1996 and 2000 aiming to commercialize the Internet, backed by more than $256 billion in venture capital. 26But if the dot-com bubble is remembered mainly for the initial public offerings of stock that made all the headlines, it’s important to remember that the actual dot-com mania, as measured by high-profile Internet IPOs coming to market, happened in a relatively brief window of time. In 1995, 7 stocks IPOed that could be termed “Internet companies.” In 1996, there were 27. In 1997, the first of the real “dot-coms” came to market, totaling 19. In 1998, there were 29. But in 1999, there were 249 Internet IPOs. And those were just the Internet companies that debuted on the stock market. There were untold others that got acquired or went nowhere.
Highlight [page 124]: And with every new company that enjoyed a 100% first day “pop” on the markets, the increasingly isolated voices that were urging caution seemed all the more discredited. A well
Highlight [page 125]: respected, longtime stock market insider weighed in at the tail end of 1998, saying, “It defies my imagination that so many people with so little sophistication are speculating on these stocks.” The man speaking these words was Bernie Madoff. 28
Highlight [page 128]: By December 1999, after more than two years in business, eToys could only boast lifetime revenues of $51 million. That was about as good as the combined yearly sales of seven Toys “R” Us real-world stores—and Toys “R” Us had nearly 1,500 stores worldwide. No matter. eToys went public in May of 1999, selling 8,320,000 shares at $20 apiece. On the first day, the stock leapt to $85, before settling at $76, a 282% pop. eToys had a market capitalization of $7.6 billion, compared to Toys “R” Us’s $5 billion
Highlight [page 132]: The venture capitalists who backed these companies were aiming for supernova IPOs, because that’s when they got paid. Any IPO meant an “exit” for venture investors. Those incredible first-day “pops” that dot-com stocks experienced when IPOing? That was the early money cashing out, selling their shares to the investing public, who would now be holding the bag, waiting to see if that fancy new business model would ever work out. The dot-com bubble was a fantasy period when a lot of VCs actually didn’t care if a business model made sense, because it didn’t need to. “We’re in an environment where the company doesn’t have to be successful for us to make money,” a venture capitalist at Benchmark admitted when mulling over a pre-IPO investment in Priceline
Highlight [page 134]: In January 1999, Yahoo paid $3.6 billion to acquire GeoCities. At the time, GeoCities was generating only $7.5 million a quarter in revenues and had no profits
Highlight [page 138]: BY OCTOBER 1999, the market cap of the 199 Internet stocks tracked by Morgan Stanley’s Mary Meeker was a whopping $450 billion, about the same size as the gross domestic product of the Netherlands. But the total annual sales of these companies came to only about $21 billion. And their annual profits? What profits? The collective losses totaled $6.2 billion. 69“People come in here all the time and say, ‘The last thing I want to be is profitable,’ ” one investment banker bragged in June of 1999. “ ‘Because then I wouldn’t get the valuation of an Internet company.’ ”70
Highlight [page 146]: AOL became so proficient at doing these deals, so rapacious, in fact, that it gained a reputation for aggressiveness that, until recently, only Microsoft had enjoyed. AOL’s army of deal-makers were known internally as the company’s “hunter-gatherers,” because they descended on the dot-coms like predators and made them offers they couldn’t refuse. As one anonymous dot-com executive remembered AOL’s tactics, “For weeks it was, ‘You’re great, you’re great, you’re great,’ and then one day [we had to] give them every last dollar we had in the bank and 20 percent of our company.” Another dot-commer said AOL demanded 30% of her company, “and then for good measure they tell us, ‘These are our terms. You have 24 hours to respond, and if you don’t, screw you, we’ll go to your competitor.’ ”30
Highlight [page 146]: Over the course of the 1990s, AOL’s stock appreciated 80,000%. 31By 1999, its market cap would reach $149.8 billion, and that same year AOL became the first Internet company added to the S&P 500 index, taking the place of the century-old Woolworth Corporation. 32AOL was worth more than Disney, Philip Morris, or even IBM; it was worth more than General Motors and Boeing combined
Highlight [page 155]: MANY OBSERVERS of the dot-com bubble have found it instructive to compare it to earlier bubbles like the tulip mania in seventeenth-century Holland or the South Sea Company’s collapse in eighteenth-century London. But it’s the example of the railroads in Britain in the 1840s that’s the most analagous
Highlight [page 157]: As late as 2005, as much as 85% of broadband capacity in the United States was still going unused. 84That meant as soon as new “killer apps” were developed, apps like social media and streaming video, there was plenty of cheap capacity allowing them to roll out to the masses. The tracks, as it were, had already been laid
Highlight [page 160]: Larry and Sergey both grew up to respect research, academic study, mathematics and especially computers. And they both had inquisitive minds, believing in the power of knowledge to overcome any obstacle, intellectual or practical. Each had been inculcated into this spirit of intellectual fearlessness at a young age
Highlight [page 160]: You can’t understand Google,” early Google employee Marissa Mayer (and later, Yahoo CEO) has insisted, “unless you know that both Larry and Sergey were Montessori kids. It’s really ingrained in their personalities. To ask their own questions, do their own things. Do something because it makes sense, not because some authority figure told you. In a Montessori school, you go paint because you have something to express or you just want to do it that afternoon, not because the teacher said so. This is baked into how Larry and Sergey approach problems. They’re always asking, why should it be like that? It’s the way their brains were programmed early on.”2
Highlight [page 161]: PAGE WAS STRUCK by a fundamental truth about the web that is glaringly obvious when you state it out loud: it is built on links. One page linking to another; one idea linking to another. As of yet, no one had bothered to analyze the structure of the link ecosystem in a comprehensive way. For example, it was possible to know that webpage A linked to webpage B because you could see it—you could follow the link. But what about the reverse? What pages had linked webpage A? There was no way to know. You couldn’t follow a link stream backward, only forward. Page wondered: if you analyzed all of the back links, if you mapped out the link structure of the entire web, what sort of insight might that data give you?
Highlight [page 163]: IT TURNED OUT THAT the reason search engines had never worked very well prior to PageRank was not that they were broken, but because they were missing the key innovation that Brin and Page had stumbled upon: relevancy. If, in 1997, you did a search for “automobile company” on even the best search engine at the time (AltaVista) you’d find yourself disappointed because the websites of Ford, General Motors or Toyota would probably not show up. It’s not that AltaVista couldn’t find those sites. It most certainly had! Ford.com or GM.com or Toyota.com were most likely in the list of tens of thousands of results that AltaVista had found. It was just that AltaVista had no way of surfacing those most relevant results to the top. So they were on page 3 of the search results. Or page 300
Highlight [page 167]: This all paid dividends many times over in Google’s steady growth. By 1999, usage of the search engine was increasing by as much as 50% a month. 15 From 100,000 searches a day at the beginning of that year, Google searches grew to an average of 7 million per day by the end of it. 16Overall traffic to the Google homepage was peanuts compared to the numbers a site like Yahoo was pulling down, but in the case of Google, its users came via word of mouth alone. Not a dime was spent on marketing or promotion
Highlight [page 169]: Ultimately I view Google as a way to augment your brain with the knowledge of the world,” Sergey Brin said. 22It helped that Google positioned itself as the anti–dot-com startup. Glitz, hype and excess were out; frugality, hard work and earnestness were in. And when Google came up with its famous motto (Don’t Be Evil) everyone in technology read between the lines and believed that Google was staking a claim to be the antiMicrosoft
Highlight [page 171]: the size of the music files was too large for the dial-up Internet connections of the day; downloading a single song could take half a day to complete. This changed in the mid-nineties, when a new type of music file was introduced. ISO-MPEG Audio Layer-3, or MP3, was developed at the Fraunhofer Society for the Advancement of Applied Research in Germany and used audio and file compression to create music files that were much smaller in size, but without sacrificing too much in the way of sound quality
Highlight [page 175]: This is another point that’s widely misunderstood about the Napster story. The lawsuits and the media publicity that came with them helped create the Napster sensation. It was almost a textbook example of the Streisand Effect, the phenomenon (as Wikipedia describes it) whereby an attempt to hide, remove or censor a piece of information has the unintended consequence of publicizing the information more widely. Before the lawsuit, there were maybe 50,000 users on Napster; a month after the lawsuit, that number had tripled to 150,000. 38By the summer of 2000, there were more than 20 million.
Highlight [page 181]: Jobs wanted Macs to become the “digital hub” in a forthcoming media utopia that would include then-novel gadgets like DVD players, digital cameras, digital camcorders, personal digital assistants and more. The Mac would be the central machine that would help manage and empower all the other gadgetry. To this end, Apple began releasing a whole suite of Apple-produced (and Macintoshexclusive) software applications to make the digital hub a reality, including iDVD, iPhoto, iWeb and GarageBand
Highlight [page 181]: One of the more popular Mac applications for MP3s was a Winamp-like digital jukebox called SoundJam, which was developed by two former Apple engineers. In March of 2000, Apple purchased SoundJam and turned it into an application called iTunes, which was unveiled at the Macworld trade conference on January 9, 2001. 3iTunes became the flagship of Apple’s digital hub.
Highlight [page 182]: In late 2000, an Apple executive named Jon Rubinstein made a routine trip to Japan to visit electronics supplier Toshiba. In his meeting with Toshiba’s engineers, he was told about a new, incredibly small, 1.8-inch hard drive the company had developed that could hold up to five gigabytes of data. Toshiba wasn’t sure what it could be used for. Laptops, obviously. Or maybe digital cameras? Rubinstein knew exactly what it could be used for. Toshiba’s hard drive was the size of a silver dollar but had the capacity to store about 1,000 MP3s. If Apple married this hard drive to its elegant hardware and software design prowess, it could design an MP3 player that blew the others out of the water. Jobs authorized Rubinstein to buy all the 1.8-inch hard drives he could get his hands on.
Highlight [page 185]: Apple announced the iTunes Store on April 28, 2003, and in no time Jobs’s notion that ease of use and user freedom could give piracy a run for its money proved prescient. The iTunes Store sold a million songs in just six days. 18A year later, Apple would announce it had sold 100 million songs. Less than a year after that, 1 billion
Highlight [page 186]: All through the height of the iTunes Store’s popularity, the music industry’s revenues continued to collapse, from an inflation-adjusted height of $21 billion in global sales in 1999 to just under $7 billion in 2015. 26Sales of digital music didn’t surpass physical music until around 2011; as recently as 2017, 22% of all music sales were still in physical formats. 27Business models, even when they’re dying, can stubbornly cling to life, right until the very end (just ask the newspaper industry, which still makes the bulk of its money delivering news on dead trees via trucks).
Highlight [page 187]: The lesson of commerce in the Internet Era—from Amazon through Napster through the iTunes store—has been that consumer habits and expectations have changed radically. The general public has intuited that the Internet and digital technology enable a world of unlimited selection and instant gratification. If your business model stands in the way of that, well, consumers will just go around you.
Highlight [page 188]: When, in the summer of 2000, Netflix even offered to sell itself to Blockbuster for about $50 million with the express idea that Netflix would become the DVD channel for Blockbuster, thereby saving it from the costly transition of its inventory from VHS, Blockbuster said no. 31It still didn’t believe DVDs would catch on
Highlight [page 201]: Schmidt would go on to form with Page and Brin evolved into a sort of triumvirate where all three had meaningful say. Though, if push came to shove, the founders could outvote the CEO. Page and Brin’s dream candidate for the job had been Steve Jobs, but it’s hard to imagine the Apple founder being willing to take a back seat to two twenty-seven-year-olds, as Schmidt eventually agreed to do.
Highlight [page 222]: By 2008, when YouTube was streaming 4.3 billion videos per month (in the United States alone), many people—young people especially—were beginning to watch more video online than they were watching on traditional TV. 23For the first time, Hollywood stopped fighting disruption, and followed the changing tastes of their audience into a digital future.
Highlight [page 224]: In 2002, a former Netscape employee named Jonathan Abrams launched a site called Friendster.
Highlight [page 225]: One of the things that was driving users away from Friendster (aside from the slow performance) was the fact that Abrams had insisted on a strict fidelity to identity. Anytime users created a Friendster account under a pseudonym, or started a parody account or pretended to create an account as a celebrity, Friendster would delete it
Highlight [page 259]: All through the first half of the 2000s, mainstream consumers collectively yawned at the explosion of smartphone and mobile computing features. By 2005, there were only 3.5 million smartphone subscribers in the United States. 24 As late as 2006, only around 6% of the 150 million phones shipped in North America were “smart.” 25Even though it was used by 85% of Fortune 500 companies, RIM didn’t reach a million subscribers until 2004. 26Palm’s sales actually began declining, beginning in 2000.
Highlight [page 263]: The deal Apple would cut with Cingular/AT&T would take a year to finalize, but it alleviated almost all of Jobs’s concerns. In exchange for an exclusive right to an Apple phone on its network, AT&T would grant Jobs carte blanche to design the phone as Apple saw fit. It would be completely Applebranded and AT&T would have no say in the features or services the phone offered. As icing on the cake, Apple would get a share of the monthly cellular data payments users would have to cough up to use the device
Highlight [page 267]: In technology parlance, dogfooding is when you test your beta product yourself, eating your own dogfood, as it were, in order to work out the bugs. Apple engineers were instructed to live on their iPhones exclusively, to catch bugs in every possible use case
Highlight [page 268]: Other issues were solved by a clever combination of hardware and software. To make sure the screen turned off when a user pressed it to her face to answer a call, a proximity sensor was embedded. The problem of the phone accidentally turning on in a user’s pocket was solved when a UI designer noticed the sliding lock and unlock mechanism on airplane bathroom doors. Thus, “slide to unlock” was born.
Highlight [page 268]: But the biggest headache, until late in the development period, remained the functionality of the software keyboard. The problem was finger size. If you tried to type, say, the letter “e,” your finger might trigger a range of other letters instead. The solution, as ever, came from clever design. Apple engineers used artificial intelligence techniques to create an algorithm that would predict which letter a user might want to type next. For example, if someone types the letter “t,” there is a very high probability that they will want to type “h” next. So, the letter “h” would, to the naked eye, look like it stayed the same size on the keyboard when, in fact, the “hit area” for the letter h would get bigger. After that, the “e” would likely be huge as a hit region. “The,” after all, is a common word. This predictive typing algorithm saved the iPhone from repeating the failures of the Newton
Highlight [page 273]: The argument could be made that social media finally broke through to the mainstream because smartphones went mainstream at the same time. And a complementary argument could be made in reverse: that the iPhone took off when other smartphones hadn’t because it arrived on the scene just when Facebook was going parabolic. Rather than too soon, the smartphone+social media represented a moment when two world-changing technologies arrived at just the right moment
Highlight [page 274]: Licklider was also a theoretical visionary. In 1960, he wrote a paper called “Man-Computer Symbiosis,” which is considered a fundamental text of modern computer science.