Dot.Con

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Prologue

One of the strange things about history is how certain periods from long ago can seem recent, while some events that just happened, relatively speaking, can appear ancient. As these words are being written, President George W. Bush has declared war on terrorism, and American warplanes are heading for Central Asia. Suddenly the Cold War, with its attendant undercurrent of fear, feels a lot closer, while the carefree 1990s seem like a distant age. It is too early to judge the ultimate historic significance of the terrorist attacks that were carried out on the World Trade Center and the Pentagon on September 11, 2001, but one thing is clear: they changed America's view of itself. The belief in U.S. military and economic invulnerability, which grew stronger by the year during the 1990s, until it was taken for granted by many, has been violently undermined. In the wake of the attacks, America's attention has shifted from the secondary human concerns that dominated during the 1990s boom (saving for old age, getting rich) to the primary matters of human survival (staying safe, providing a livelihood for one's family).

Already, it is hard to fathom that just a couple of years ago many intelligent Americans believed that the marriage of computers and communications networks had ushered in a new era of permanent peace and prosperity. Depending on which Wall Street or Silicon Valley guru you listened to, the Internet was the most revolutionary development since the electric dynamo, the printing press, or the wheel. The most striking manifestation of this thinking was the extraordinary prices that people were willing to pay to invest in Internet companies. In nearly every sector of the economy, entrepreneurs, many barely out of college, were rushing to establish online firms and issue stock on the Nasdaq, which was heading upward at a vertiginous rate. Names like Marc Andreessen, Jerry Yang, and Jeff Bezos were being uttered with awe.

In March 1999, Priceline.com, an Internet company that operated a site on the World Wide Web where people could name their price for airline tickets, was preparing to do an initial public offering (IPO). In order to introduce Priceline.com's executives to Wall Street analysts and fund managers, Morgan Stanley, the investment bank that was managing the IPO, hired a ballroom at the Metropolitan Club, at 1 East Sixtieth Street, a fitting location. The Metropolitan, which John Pierpont Morgan founded and Stanford White designed, is a lavish remnant of a previous gilded age. Four stories high, its white marble exterior is fronted by six Roman columns and an ornate cornice. After the guests had picked at their lunch, Richard S. Braddock, Priceline.com's chairman and chief executive, told them that his firm had the potential to revolutionize not just the travel business, but automobile sales and financial services, too. This was a grand claim from a start-up that had been in business for less than a year and employed fewer than two hundred people, but nobody in the room queried Braddock's presentation.

By the standards of the time, Priceline.com had impressive credentials. Jay S. Walker, the company's founder, was a Connecticut entrepreneur who had already made one fortune by peddling magazine subscriptions in credit card bills. Braddock was a former president of Citicorp, and Priceline.com's board of directors included Paul Allaire, a former chairman of Xerox Corporation, N.J. Nicholas Jr., a former president of Time Inc., and Marshall Loeb, a former managing editor of Fortune magazine. William Shatner, the actor who played Captain Kirk in Star Trek, had appeared in a series of popular radio ads for the firm. Morgan Stanley's star analyst, Mary Meeker, recently dubbed "Queen of the 'Net" by Barron's, the weekly investment newspaper, had helped coach the Priceline.com team for their presentation, and she was sitting in the back of the room as they spoke.

The word on Wall Street was that Priceline.com would follow the path of America Online, Yahoo!, and eBay to become an "Internet blue chip." The only question people in the investment commnity were asking was how much stock they would be able to lay their hands on. Underwriters reserved Internet IPOs for their most favored clients. Other investors had to wait until trading started on the open market before they could buy any stock. On the morning of March 30, 10 million shares of Priceline.com opened on the Nasdaq National Market under the symbol PCLN. They were issued at $16 each, but the price immediately jumped to $85. At the close of trading, the stock stood at $68; it had risen 425 percent on the day. Priceline.com was valued at almost $10 billion—more than United Airlines, Continental Airlines and Northwest Airlines combined. Walker's stake in the company was worth $4.3 billion.

Airlines like United and Continental own valuable terminals, landing slots, and well-known brand names—not to mention their planes. Priceline.com owned some software, a couple of powerful computers, and an untested brand name. Despite this disparity, few on Wall Street were surprised by Priceline.com's IPO. Such events had become an everyday occurrence. The New York Times didn't think the Story merited a mention on the front page of the next day's edition and instead relegated it to the business section. "It doesn't matter what these companies do or how they are priced," David Simons, an analyst at Digital Video Investments, told the paper. "Each new Internet IPO is nothing more than red meat to the mad dogs." Penny Keo, a stock analyst at Renaissance Capital, saw things differently. "We like Priceline's business model," she said.

This was an interesting statement. Priceline.com started operating on April 6, 1998. By the end of the year it had sold slightly more than $35 million worth of airline tickets, which cost it $36.5 million.

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Excerpted from Dot.Con: How America Lost Its Mind and Money in the Internet Era by John Cassidy
All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.