It is 1999. A man in a fleece vest is standing on a stage in San Francisco, holding a laser pointer aimed at a PowerPoint slide that reads: "Pets.com: The Future of Pet Ownership." The audience is nodding. Venture capitalists are already reaching for their chequebooks. Nobody has asked how the company will make money. That question, frankly, is a bit gauche.
We 'bout ta bubble, baby. Get ya waterproof vest.
The Richter Scales saw it coming in 2007 when they wrote their now-legendary parody song warning that Web 2.0 was inflating like a rubber duck in a bathtub. They were right, of course as right as anyone who says "this cannot possibly last" always eventually is. But in the dot-com era, the original bubble, the Platonic ideal of financial absurdity, the bubble against which all future bubbles are measured, nobody was listening to the cautious voices. The cautious voices were not invited to the foam parties.
Peter Thiel was there for all of it. He watched PayPal survive the wreckage, then sat down years later to write Zero to One, his meditation on startups, monopoly, and the peculiar madness of Silicon Valley. In the book he describes the dot-com crash with the clinical detachment of a man who made it out alive: the lesson entrepreneurs drew from the carnage was to be lean, scrappy, and humble. No grand visions. No world domination. No more mascots with sock puppets.
Thiel thought this was entirely the wrong lesson.
He was probably right, but let us not get ahead of ourselves. First, the bubble.
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Going From Zero to One to Zero Again
The dot-com boom was, in Thiel's framework, a catastrophic misunderstanding of what makes a business valuable. Zero to One argues that truly great companies do something no one else does they go from zero to one, creating something genuinely new rather than competing in existing markets. A monopoly, in Thiel's cheerful redefinition, is simply a company so good at what it does that no one can touch it.
The dot-coms of 1999 had a different interpretation. They went from zero to one to one hundred to NASDAQ listing to zero, in approximately eighteen months, with a sock puppet in tow.
The business model of the era was essentially: acquire users at any cost, figure out revenue later, IPO before anyone notices. Pets.com spent $11.8 million on advertising in its first year and made $619,000 in revenue. This is not going from zero to one. This is going from zero to negative several million and calling it "growth hacking." Webvan raised $375 million to deliver groceries and collapsed without ever turning a profit. Kozmo.com promised one-hour delivery of DVDs and ice cream at 2 a.m., which was genuinely visionary, and also genuinely bankrupt by 2001.
Thiel writes that the dot-com entrepreneurs "learned all the wrong lessons." They became allergic to ambition. But the original sin was not ambition it was the belief that a website was a business plan.
The Valuation Was Vibes
The Richter Scales' song ticks through the absurdities of 2007 Web 2.0 valuations. Facebook at $15 billion, YouTube, MySpace and asks, politely but musically, whether anyone had done the math. The dot-com generation didn't even pretend to do the math. Analysts invented new metrics specifically to justify the numbers: eyeballs, stickiness, mindshare. If your company had enough eyeballs, the theory went, the money would eventually find its way in through some as-yet-undiscovered orifice.
Thiel would call this "indefinite optimism" the belief that the future will be great, without any specific plan for making it so. He contrasts it with what he admires: definite optimism, where you have a concrete vision and execute it. The dot-com era was pure indefinite optimism in a turtleneck. Everyone knew the internet was going to change everything. Nobody could quite explain their burn rate.
The NASDAQ peaked at 5,048 in March 2000. By October 2002 it had fallen to 1,114. Five trillion dollars of market value evaporated. The fleece vests were quietly returned to Patagonia.
Competition Is for Losers (But So Is Having No Revenue)
One of Zero to One's most provocative arguments is that competition is overrated that businesses obsess over beating rivals when they should be focused on escaping competition altogether by building something unique. The dot-com boom took this principle and applied it with the subtlety of a server rack falling down stairs. Companies didn't escape competition by being better. They escaped it by burning through their runway before anyone else could enter the market, which is a different strategy entirely.
The pets supplies market, for example, did not need Pets.com, PetSmart.com, Petopia, and at least three other venture-backed competitors all spending themselves into oblivion simultaneously. This is what Thiel calls a "perfect competition" scenario many players, no profits, everyone loses but achieved with the velocity of a Silicon Valley funding round.
The surviving companies from that era Amazon, Google, eBay survived precisely because they did have something close to what Thiel describes: genuine technological advantages, network effects, and the sense not to spend their entire Series B on a Super Bowl ad.
Here Comes Another Bubble, Here Comes Another Bubble...
The Richter Scales were singing about 2007. The song is now eighteen years old and has never not been relevant. Every few years the playlist updates subprime mortgages, cryptocurrency, SPACs, generative AI valuations but the melody stays the same. Someone discovers a new technology or asset class. Capital floods in. Valuations detach from reality like a weather balloon in a hurricane. A pundit writes an op-ed saying this time is different. The bubble pops. Everyone looks at the sock puppet.
Thiel ends Zero to One with a call for founders to think for themselves, to build the future deliberately rather than stumble into it. It's a good message. It is also, historically speaking, the kind of message that gets very popular at the exact moment everyone is too busy refreshing their Robinhood app to read it.
We bout ta bubble baby. The vest is still wet. The waterproofing, as ever, is optional.
References: Thiel, P. & Masters, B. (2014). Zero to One: Notes on Startups, or How to Build the Future. Crown Business. The Richter Scales. (2007). "Here Comes Another Bubble." richterscales.com Cassidy, J. (2002). dot.con: How America Lost Its Mind and Money in the Internet Era. HarperCollins.