The Digital Bubble


THE NEW YORKER MAGAZINE – January 19, 1998

The Digital Bubble

Waking up from the new-media pipe dream.

I SPEND HALD MY WAKING HOURS sitting at a monitor and keyboard, fiddling with words. Eight times today, I mouse-clicked through a high-speed phone line onto the Internet, where I searched the Nexis database of newspaper articles and plucked a description of seventeenth-century Manhattan domestic life out of a university archive. A computer is as close to indispensable as any machine I own. It’s no wonder, then, that the press—which is to say me multiplied by thousands—has been preternaturally inclined to sing the praises of digital technology.

The only professional caste as profoundly computer-dependent as the media is Wall Street. Traders and analysts require infusions of fresh data—all day, every day—on earnings and share prices and interest rates. It’s no wonder, then, that Wall Street has been preternaturally inclined to sing the praises of digital technology.

What journalists and financial professionals haven’t understood, however, is that almost no one else finds computers and the Internet quite so essential. And as a result of this improbable accident of history—giddy journalists and giddy money managers enthralled at the same moment by the same new gadgetry—the technology now sits at the center of a speculative frenzy of religious intensity, a financial mania, a bubble.

Last year, I heard a respected entrepreneur say about a digital start-up enterprise, “Even if it doesn’t make money in the sense of earnings, the market cap will move capital into the business.” That is classic bubble double-talk: If speculators invest money in a failing business, the business thereby becomes a success. America in the nineteen-nineties is not Holland in the sixteen-thirties, but the market valuation of the on-line Internet guide Yahoo!—$2.7 billion, or a hundred and sixty times its earnings—could one day seem as nutty as a forty-two-hundred-gulden Viseroij tulip bulb.

The digital bubble may be bursting already. Since summer, the market capitalizations of  Microsoft and Intel have fallen ten and nearly thirty per cent, respectively. Just last week, the value of the Web-browser company Netscape declined more than twenty per cent, to just about its lowest point ever.

We should have been skeptical when, around 1993, “evangelist” became a regular job title in the software business. The media most intensely thrilled by the digital revolution, such as Wired and Fast Company, are produced by secular missionaries, baby boomers dedicated to their lifelong faith in sexy generational exceptionalism: laptops and fax modems are the reefer and long hair of this overcaffeinated age.

The irrational exuberance of the media now propels not just a credulous cover story here and a cheerleaderish special section there but profligate online giveaways of expensive journalism. Why do network-news divisions spend tens of millions of dollars a year on Web sites that generate a pittance in advertising revenue? A year ago, I spent fifteen or twenty dollars a week at newsstands for the Washington Post, the New York Post, the News, and the Times. Why do the publishers of all those papers (and of magazines) now let me read them free, on the Web? They justify the practice vaguely as brand protection and R. & D., but the reasons look more like confused mixtures of vanity and panic. It’s a particularly crazy kind of gas war: they’re giving the product away not to maintain market share or to crush a competitor across the street but because—well, it’s new, and, you know, everybody else is doing it. It’s strange: in this era of unsentimental hypercapitalism, wishfulness and peer-group pressure rule. One veteran new-media executive told me recently, “I don’t think anyone has a sustainable business plan.” Financial and sports information are the most natural fits for the medium, both because timeliness is crucial and because they are more about data than about prose. The Wall Street Journal   brags about its electronic edition’s hundred and fifty thousand subscribers, the largest paid on-line circulation by far. But it’s charging only forty-nine dollars a year, less than a third of the price of the paper version. The other putative on-line success story, ESPN SportsZone, has five million users a month, but only a minuscule fraction of those users pay for the service.

Slate, Microsoft’s on-line magazine, is about to begin charging readers. Its founder, Michael Kinsley, won’t specify a paid-circulation goal, but a Slate staff member told me that fifteen thousand subscribers is the (arbitrary) target. “We don’t want to be Bill Gates’s charity,” Kinsley says. “But I have never had any discussion with Microsoft to suggest any time limit on this experiment.” So Slate is definitely a for-profit enterprise, but a for-profit enterprise under no obligation ever to make a profit? “It may be a distinction without a difference,” Kinsley concedes.

Louis Rossetto has been an avatar of the digital bubble, both as a journalist (he co-founded Wired) and as a would-be Wall Street conjurer (in 1996, he tried and failed to get the stock market to value Wired Ventures at four hundred million dollars). Having helped whip up the general overexcitement, he is now sensibly moving beyond it. Running through millions of dollars on Web-site R. & D. has convinced him that real journalism doesn’t belong on line at all. “The Web is not about reading,” he says. “It’s not about developing long ideas. It’s about getting to mission-critical information”—by which he means a journalist downloading a Nexis fact on deadline, say, or a stock trader pricing March puts on his Bloomberg screen. “It turns out that euphoria,” Rossetto told me from his car phone last week, the morning after Wired’s fifth-anniversary party, “is not a business strategy.”