Washington, DC, June 12, 2001 --  

Sixteen months ago, at the peak of the Internet boom, I sat in my office browsing over the new website of Kozmo.com, an online delivery company that had just come to town. They promised to deliver videos and snacks within an hour. The prices for the items were as good as you'd get anywhere, delivery was free, and a system of earning Kozmo points meant that you often didn't even have to pay for what you ordered.

In complete disbelief that this could be real, I challenged a friend to pay Kozmo to bring him the cheapest item possible -- a $1.10 box of candy Red Hots. He paid the $1.10 + tax online with his credit card, and 45 minutes later, a bicycle courier in a bright orange uniform showed up and handed him a box of Red Hots. It was real. But how could they make money doing this? Sooner or later, they'd have to raise prices, or go out of business. I knew it was crazy. "Enjoy it while it lasts" became my motto.

These unbelievable deals continued through the early part of this year. My daily lifestyle in February often consisted of downloading free music from the Internet during the workday, watching free Kozmo videos in the evening, and eating high-quality discounted food delivered free to my home by an online grocer. But my too-good-to-be-true Internet lifestyle didn't stop with daily activities. I'd recently had film pictures developed for free by an Internet photo site, ordered compact discs at cost from an online retailer, and gone on a vacation to Oaxaca on a discounted airline ticket available only to Internet customers.

What a difference three months makes. I'd been insulated from recent changes by going on a three-month round-the-world trip. Although it wasn't noticeable from the jungles of Papua New Guinea, much of my beloved Internet world was falling apart. Kozmo.com went bust in April. Napster, the site that enabled me to get my free music started blocking searches a month earlier. Ofoto.com now charges for film developing. Grocery discounts at HomeRuns.com have vanished as delivery charges have increased. When I returned, all these changes hit me simultaneously like a powerful slap in the face.

Getting over my shock hasn't been helped by all the Internet naysayers who have rejoiced with each Dot Com failure. These people never embraced the Internet revolution, they never took advantage of the fantastic deals, and are now saying "I told you so," every chance they get.

With most Internet enthusiasts sheepishly silent, the only rational analysis has come from economists who note that the weeding-out of weak Internet companies is a natural process that comes with any boom resulting from a new technology.

The often-repeated analogy is with the Railroad boom of the 19th century.¹² Then as now, a revolutionary new technology spawned countless companies that had ever-growing stock valuations, until most went out of business taking the investors' money with them. The consolidation did not mean that railroads were not important to the economy, just that there were more players than the market could justify.

However true, this analogy is of little comfort to those of us who have become accustomed to getting all that free stuff. During the railroad boom of 125 years ago, consumers usually felt the benefits of the new technology only indirectly. It was manufacturers, farmers, and shopkeepers who found rapid and inexpensive new routes to get products to market.

Unlike the railroad boom, the Internet boom was consumer-oriented. This made it much more accessible to the common man, and a much easier target for economically challenged pundits ready to throw the baby out with the bathwater.

Despite all the companies lost in the shakeout, there are plenty remaining to make life quite different and certainly easier than it was five years ago. Surviving Internet companies are better funded and have more sustainable business plans. The insane companies that offered unbelievable deals didn't last. I knew that would happen. But I enjoyed it while it lasted.

Notes:

1. Foreign Policy, Think Again: The Internet Economy, March/April 2001

2. Business Week, The Internet Economy, February 22, 1999