Lessons from the Crash before the Crash before Whatever Is Happening Now

Despite what you think, we live in the past. It repeats, and each generation can't believe how far we have fallen. For a moment we were all so smart.

Recently our friends at LUMA Partners released an analysis of mar-tech and ad-tech valuations, showing that these industries are now trading near their long-term averages. Bitcoin is where it was two years ago. Let's call it a blip.

Yet younger colleagues can't quite believe it. Trust me, it's happened before and will over and over again until the ultimate ad is displayed by the celestial app and our collective dream engine powers down for the last picture show.

Illusions are subtle; they seem to be so real.

At the height of the dot-com boom, around 2000, the economist George Gilder said: "The act of creation is a religious act, and investors should avoid ... 'spurious rationality.'"

Now smart people are better at fooling themselves. They can argue almost anything.

Many of Gilder's contemporaries did -- create, that is, and abandon their reason. Jeff Bezos quit a Wall Street job and drove to Seattle in his father's Chevy Blazer to found a company to sell books online. That worked out, eventually. But then actual bookstore chain founder Louis Borders raised an easy $400 million to start Webvan to deliver groceries in under 30 minutes.

Between 1990 and 1998, VC investment went up 20X or 2,000%.

TheGlobe.com went public in 1998 at $9 a share. Within five minutes, it was at $97. Providing an easy way for people to launch templated websites, it was just nine months old. eBay followed and its stock price bonfired from $18 in September to $241 before what was surely the best staff holiday party ever.

"The internet," said economics writer David Lowenstein, "had now reached the stage in which people cease to think and simply imitate each other without any regard to the underlying economics -- in other words, a bubble."

Broadcast.com provided streaming media over phone lines that turned the stream into a trickle and a wait, like a hot tub on Mars. But somehow Yahoo decided it was worth paying almost $6 billion for it, making a young man named Mark Cuban very rich indeed.

The MGM Grand hosted the biggest boondoggle of all -- in Las Vegas, of course -- called the iBASH 99. It cost a reported $10 million and was supposedly staged to promote a mysterious entity called Pixelon that was either a scam or a big waste of coin. It was bankrupt in a year, launching nothing. But the 'best party ever,' as reported by then-trendy SFGirl.com -- later named as Patty Berone, who worked in real estate -- celebrated Acteva's renaming to Tixtogo ... 3,500 people ... a former airplane hanger on Treasure Island in the San Francisco Bay ... trapeze artists, Mayor Willie Brown, pig races ... unimagined debauchery. This was October, 1999.

People were forced to pay a full year's rent in cash, in advance, to find a place to live. Billboards up and down Highway 101 advertised mainly dot-coms. Headquarters for a company called Excite@Home lurked over 101 in Redwood City. It sold broadband services with ad-tech, including a way to serve display ads, and a search engine that started the brilliant pay-per-click business model. It went bankrupt after 9/11, and its headquarters stood empty for five years.

But at the beginning of 2000, traffic up and down I-280 into San Francisco was unimaginable as kids drove from the city to dot-jobs all along the path to Palo Alto and San Jose.

And then it got worse.

Advertising was both symptom and cause of the boom. In 2000, 69% of all online ad dollars came from dot-coms. advertising themselves.

So the bubble was stoked by dot-coms buying ads, creating media empires like Yahoo that bought dot-coms like Broadcast.com, driving up the value of other dot-coms and inspiring VC’s to fund companies that then, yes, bought ads from online media companies that ... and so on.

There were other ideas. Free-PC.com gave away Compaq PCs. In return, its victims watched a stream of ads crawling along their (free) screens. AllAdvantage.com sent customers checks based on how many ads they watched. Two co-founders were recent Stanford grads. The week the NASDAQ peaked – at around 5,000 – Credit Suisse’s Glickish Frank Quattrone took those founders and their team by private jet to Aspen for a weekend none of them can quite recall.

In its most recent quarter, AllAdvantage.com had sold less than $9 million in ads and paid out almost as much to its ad-watching customers, many of whom (it turned out) were robots. AllAdvantage.com did not know they were robots. They cashed their checks too.

And then came Super Bowl XXXIV. During the course of a strategic dialogue between the Rams and the Patriots, catalyzed by a brilliant Tom Brady, sixteen different dot-coms aired 30-second spots. Each cost about $2 million.

The most telling was the pitch for a company called IWon.com, which had the so-called business model of giving away its investors' cash in $1 million bundles.

Even as the Pats were celebrating, the NASDAQ stopped climbing. It had muscled up 5X in five years.

One year later, during Super Bowl XXXV, there were only three dot-coms showing ads. Two of them were job-hunting sites.

A research firm predicted that by 2005, the share of internet ads bought by dot-coms would plunge from 69% to 16%. The average price for online banner ads went from $50 to $5 for 1,000.

After March 10, 2000 – as Quattrone towels off after his hot tub luau in Aspen with the soon-to-be-bankrupt AllAdvantage.com team – the NASDAQ index starts falling ... and falling ... and after thirty sickening months is down 78%.

And so that's what happened in the crash before the crash before what is happening now.

Are there lessons? Go back to George Gilder: don't listen to arguments of self-justification.

We are herd animals who believe we are not. We are capable of egregious greed and outrageous collective intelligence.

And we can survive anything.