Dot-Com Part 1: Burning up

Chapter 11: Dot-Com is live! Part 1 at least. I’m going to be sending out this chapter over the next couple of months in a few parts. But to start us off here’s a look at Amazon, and the paradigm shift it signaled for the web towards the end of the 1990’s.

On March 20, 2000 Barron’s featured its now infamous cover story: Burning Up. The cover of the magazine featured an illustration of large sacks engulfed in flames, the words Burning Fast seared across the top in big, bold, orange type.

Inside the magazine, Jack Willoughby penned a scathing takedown of the dot-com Internet companies which had come to dominate the stock exchange. Wiloughby predicted an end to the rapid rise of these companies, a fall brought on by an industry wide end of the runaway. Most companies, he discovered, had a burn rate that was unsustainable. They were, as the article summed up, all burning up. “When will the Internet Bubble burst?,” Willoughby asked followed by his own answer, “for scores of ‘net upstarts, that unpleasant popping sound is likely to be heard before the end of this year”

Some called Willoughby’s prediction overblown. For all the questions about sustainability, the information age was only just beginning. There was more than enough to go around. In fact, days before the article was published, the NASDAQ had reached its highest point to date.

Willoughby was right though. That peak in the NASDAQ would be the highest it would reach for fifteen years after. Within weeks, the NASDAQ would begin its decline. By April, it would drop 25 percent in a single week. Over the next few years, 80 percent of the total value of the NASDAQ would be wiped out.

As the dust settled on the dot-com crash a year later, The Silicon Alley Reporter—run by Jason Calacanis—ran a cover story of its own. It was far less subtle. On the cover of the magazine there was a full page photo spread of the Hidenburg in flames, crashing down to Earth. It was as good a signal as any that the dot-com boom was over.

Just several years earlier, things had looked much different.

The Rise of Amazon

Amazon started with books for a reason. Books are a predictable size and shape, making them relatively easy to ship. There are millions of books, a near infinite variety across every possible interest. The publishing industry has historically lacked the teeth and litigious verve of, say, the music industry. And because of its long legacy, book distribution is fairly centralized. Besides, people love books. When Jeff Bezos was looking for something to sell on his online store, books were the obvious choice.

Every decision Bezos made about was as calculated and deliberate as this first one. He has proved a number of times that when he bets on the future, he stacks the odds in his favor.

He bought a house with a garage so he could say that Amazon started in one. He chose “” as a name not because of any connection to its eponymous geographical landmark, but because most website directories listed sites in alphabetical order, and was sure to be close to the top. Even Amazon’s location, Seattle, was the result of several important calculations, as writer Jeff Cassidy describes. “Bezos chose Seattle… for several reasons. He had friends there. It had a large community of computer scientists. It was a state that didn’t have a sales tax. And it was close to Rosenburg, Oregon, where the country’s biggest book distributor, Ingram Book Group, had a major distribution center.”

These choices were instrumental in the success of Amazon. And with each decision he made, Bezos shaped the early evolution of what would soon be known as e-commerce.

A year before Amazon launched, Bezos was working at a hedge fund in New York. His background was in computer science, but his chosen career path was, at the time, in the world of market finance. In his research for his firm, he came across the web for the first time in 1994. “The wake up call was finding this startling statistic that web usage in the spring of 1994 was growing at 2,300% a year,” Bezos would later recall in an interview, “things just don’t grow that way. It’s highly unusual.”

After consulting with his wife at the time, MacKenzie Scott , Bezos decided to move across the country, to Seattle, and start an Internet company together. By 1995, he had recruited a few engineers—including Shel Kaphan, who would develop the first version of the platform—and launched his online bookseller. sold its first book in April of 1995.

The early days were rocky. On the surface, Kaphan and his team had developed a website with many of the hallmarks of modern e-commerce—an early version of a shopping cart, a rudimentary order form. But behind the curtain, Amazon employees managed everything by hand. Each time an order was placed, someone at Amazon picked up a phone and called in the order to one of several major book distributors, had it shipped to their offices, then packaged and shipped it themselves to customers. It was sleight of hand, a simulacrum of what the experience could someday be.

The web, however, offered a unique advantage. The web exists in digital space; it is no greater technological challenge to list hundreds of titles than it is to list millions. “… adopted the Web’s infinite shelf space as a competitive weapon,“ one writer explains. Amazon could place orders as they happened, shipping out books on demand even with a site that boasted thousands of selections. It turned into a game of sorts on the early web as visitors to the site tried to order the most obscure book they could think of. It was easy to evangelize, and quickly spread among web users.

But Bezos understood that the commercial potential of the web went well beyond selling the written word. In his first interview back in 1997, he positioned attention, not books, as Amazon’s primary export.

Attention is the scarce commodity of the late 20th century. One of the ways you can do that [capture attention] is to do something really innovative that actually has real value for the customer, that’s a hard thing to do, but if you do do that, newspapers will write about what you’re doing, customers will tell other customers… and that can really drive and accelerate businesses.

The obscure books on Amazon that people loved to hunt down—and that the tech press would mention over and over as something novel and exciting—weren’t there for the fractional sales they produced. They were there as a demonstration of the power of digitally distributed commerce.

It was in an attempt to capture attention that led to Amazon’s greatest innovations. Most famously, Amazon patented the 1-click buy button which reduced the friction of an e-commerce purchase down to an in-the-moment decision. As Amazon’s catalog began to sprawl beyond books, rather than extend an analogy from brick and mortar stores, they poured investment into recommendation engines for discovery. The goal, after all, was stickiness. In its first few years, many web surfers gave Amazon a lot of their attention, following one recommendation after another.

Amazon held its IPO on May 15th, 1997. Despite being only two years old, its valuation was $300 million as investors of Wall Street rushed to be a part of the runaway success. But Bezos wasn’t interested in short-term gains. Prior to its IPO, Amazon reported in its filing to the SEC that it expected “substantial operating losses for the foreseeable future.”

This was by design, a financial tactic to cash in on its inflated valuation to cover every possible inch of the market. In a letter to shareholders following the IPO, Bezos explained that Amazon’s earliest competitors would attempt to capture smaller bands of the market, but Bezos saw this as a waste of time. “A fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position.”

Amazon created a model for the trend of commercialization on the web in the mid to late 90’s. Amazon’s recommendation engine would spur other e-commerce startups to go to wild lengths to capture and hold attention.

One site,, would even spend tens of thousands of dollars attempting to create a digital assistant that could interact with visitors in real time only to fail in letting perfect become the enemy of what was already good enough.

Other companies would attempt the same financial maneuvering, running tight margins and shedding profit in attempt to dominate the marketplace. The hallmarks of dot-com e-commerce—rapid expansion, market disruption, centering tech over retail, artificial intelligence driven recommendations, a focus on stratospheric, “hockey stick” growth—they were all an attempt to chase Amazon. But none would ever quite be able to catch up. That didn’t stop them from trying though.