Dot.con

Cassidy, a New Yorker writer with an economics background, wrote a history of the internet stock bubble published shortly after it burst.

The narrative covers the sequence: the Netscape offering in August 1995 that established that a company with minimal revenue could be valued in the billions; the rush of offerings that followed; the role of investment banks in allocating hot issues, in spinning shares to executives who might direct future business, and in publishing research written to win underwriting mandates; the emergence of analysts as promotional figures, particularly Henry Blodget and Mary Meeker; the day trading phenomenon; the abandonment of earnings-based valuation in favour of eyeballs, page views and revenue multiples; the peak in March 2000 and the collapse.

Cassidy's analytical position is that the bubble was not a failure of individual rationality but a predictable outcome of the incentives in place. Underwriters were paid for volume, analysts were paid from banking revenue, venture investors needed exits, and fund managers who avoided technology stocks underperformed and lost their jobs, so nearly everyone with influence had reason to keep participating. He connects this to the economic literature on bubbles, discussing rational bubble models, the limits of arbitrage that prevent short sellers from correcting prices, and Kindleberger and Minsky on credit-driven manias.

The book was written immediately after the events, so the corporate fraud cases that followed at Enron, WorldCom and elsewhere and the resulting regulatory response are outside it. Its treatment of individual companies is necessarily brief given the number covered. Cassidy is stronger on the incentive analysis than on the technology itself, and readers wanting to understand which internet business models actually worked will not find it here.