The Internet Is Not the Answer (6 page)

Berners-Lee wrote his initial proposal for the Web in March 1989, revising the proposal and building the first Web browser, named WorldWideWeb, in 1990. In January 1991 the Web went public and in November 1991 the first website, an information resource about CERN with the address
Info.cern.ch
, was launched. Even more than email, the Web has been the Internet’s ultimate killer app over the last quarter of a century. With the creation of the Web, concludes John Naughton, the Internet achieved “liftoff.”
⁴⁸
Without Berners-Lee’s brilliantly simple innovation there would be no Google, Amazon, Facebook, or the millions of other websites and online businesses that we use on a daily basis. Without the Web, we wouldn’t all be living in Ericsson’s Networked Society.

Tim Berners-Lee wrote his initial Web proposal in March 1989 at CERN. Six months later, a few hundred miles to the northeast of Geneva, the Berlin Wall fell and the Cold War came to an end. Back then, with the dramatic destruction of the Wall in November, it was thought that 1989 would be remembered as a watershed year that marked the end of the Cold War and the victory of free-market liberalism. The Stanford University political scientist Francis Fukuyama, assuming that the great debate between capitalists and socialists over the best way to organize industrial society had finally been settled, described the moment that the Wall came down as the “End of History.”

But the converse is actually true. Nineteen eighty-nine actually represents the birth of a new period of history, the Networked Computer Age. The Internet has created new values, new wealth, new debates, new elites, new scarcities, new markets, and above all, a new kind of economy. Well-intentioned technologists like Vannevar Bush, Norbert Wiener, J. C. R. Licklider, Paul Baran, Robert Kahn, and Tim Berners-Lee had little interest in money, but one of the most significant consequences of their creation has been the radical reshaping of economic life. Yes, the Internet may, as one historian suggests, be the “greatest co-operative enterprise in the history of mankind.”
⁴⁹
But distributed technology doesn’t necessarily lead to distributed economics, and the cooperative nature of its technology isn’t reflected in its impact on the economy. No, with the creation of the Web came the creation of a new kind of capitalism. And it has been anything but a cooperative venture.

CHAPTER TWO
THE MONEY

The One Percent Economy

San Francisco’s venerable Commonwealth Club, standing at the southern end of Battery Street, a few blocks from the Battery social club, rarely sells out of tickets for its speaking events. But in February 2014, the club hosted a controversial eighty-two-year-old multibillionaire speaker who gave a sold-out speech titled “The War on the One Percent,” requiring the presence of three police officers to protect him from a bellicose, standing-room-only crowd.
¹

A month earlier, Tom Perkins, the cofounder of the Kleiner Perkins Caufield & Byers (KPCB) venture capital firm and “the man most responsible for creating Silicon Valley,” according to his biographer,
²
had written an angry letter of complaint to the
Wall Street Journal
about what he described as San Francisco’s “Progressive Kristallnacht.” The letter was a defense of Silicon Valley’s technological elite—the venture capitalists, entrepreneurs, programmers, and Internet executives of KPCB-backed local Internet companies like Google, Twitter, and Facebook, identified by Perkins as “the successful one percent.”
³
It turned out to be the most commented upon letter ever published in the
Journal
,
sparking an intense debate about the nature of the new digital economy.

“From the Occupy movement to the demonization of the rich embedded in virtually every word of our local newspaper, the
San Francisco Chronicle
, I perceive a rising tide of hatred of the successful one percent. This is a very dangerous drift in our American thinking.
Kristallnacht
was unthinkable in 1930; is its descendant ‘progressive’ radicalism unthinkable now?,” Perkins wrote about the growing popular resentment in the Bay Area to dominant Internet companies like Google and Facebook.

Tom Perkins’s February 2014 speech at the Commonwealth Club also made news around the world. While Perkins apologized for his incendiary Kristallnacht analogy, he nonetheless defended the main premise of his
Journal
letter, telling the audience that “the one percent are not causing inequality—they’re the job creators.”
⁴

Many of those in the audience disagreed, seeing local Internet companies like Google, Facebook, and Twitter as the cause of rather than solution to the exorbitant real estate prices and the high levels of poverty and unemployment in the Bay Area. “We’ve never seen anything remotely like this before,” explained the San Francisco cultural historian Gary Kamiya. “Techies used to seem endearing geeks, who made money and cute little products but couldn’t get the girls. Now they’re the lord and masters.”
⁵

Perkins, a former Hewlett-Packard executive who cofounded KPCB in 1972, made the same argument about the value of the one percent in his 2007 autobiography,
Valley Boy
. Describing some of his venture capital firm’s greatest triumphs, including the financing of Netscape, Amazon, and Google, he boasted that KPCB investments have created $300 billion in market value, an annual revenue stream of $100 billion, and more than 250,000 jobs.
⁶
It’s a win-win, he wrote in
Valley Boy
, insisting that the new digital economy is a cooperative venture. It’s resulting in more jobs, more revenue, more wealth, and more general prosperity.

KPCB’s successful bets on Netscape, Amazon, and Google certainly have been a personal win-win for Perkins. These lucrative investments enabled the self-styled “Valley Boy” to build the
Maltese Falcon
, a $130 million yacht as long as a football field, made out of the same militarized carbon-fiber material as a B-1 bomber,
⁷
and
Dr No
, his current “adventure yacht,” which carries his own private submarine to explore the South Pole. They financed the purchase of his Richard Mille watch, which he claims is worth as much as a “6-pack of Rolexes,”
⁸
his 5,500-square-foot apartment on the sixtieth floor of San Francisco’s Millennium Tower with its spectacular views of the Bay, and his multimillion-dollar mansion in exclusive Marin County, just over the Golden Gate Bridge from San Francisco.

But Perkins was wrong about the broader benefits of the network economy that KPCB played such an important role in creating. A quarter century after Tim Berners-Lee’s invention of the Web, it’s becoming increasingly clear that the Internet economy is anything but a cooperative venture. The structure of this economy is the reverse of the technological open architecture created by the Internet’s pioneers. Instead, it’s a top-down system that is concentrating wealth instead of spreading it. Unfortunately, the supposed “new rules” for this new economy aren’t very new. Rather than producing more jobs or prosperity, the Internet is dominated by winner-take-all companies like Amazon and Google that are now monopolizing vast swaths of our information economy.

But why has this happened? How has a network designed to have neither a heart, a hierarchy, nor a central dot created such a top-down, winner-take-all economy run by a plutocracy of new lords and masters?

Monetization

In
The Everything Store
, his definitive 2013 biography of Amazon founder and CEO Jeff Bezos, Brad Stone recounts a conversation he had with Bezos about the writing of his book. “How do you plan to handle the narrative fallacy?” the Internet entrepreneur asked, leaning forward on his elbows and staring in his bug-eyed way at Stone.
⁹

There was a nervous silence as Stone looked at Bezos blankly.

The “narrative fallacy,” Bezos explained to Stone, is the tendency, particularly of authors, “to turn complex realities” into “easily understandable narratives.” As a fan of Nassim Nicholas Taleb’s
The Black Swan
, a book that introduced the concept, Jeff Bezos believes that the world—like that map on the wall of Ericsson’s Stockholm office—is so random and chaotic that it can’t be easily summarized (except, of course, as being randomly chaotic). The history of Amazon is too complicated and fortuitous to be squeezed into an understandable narrative, Bezos was warning Stone. And he would, no doubt, argue that the history of the Internet, in which he and his Everything Store have played such a central role since
Amazon.com
went live on July 16, 1995, is equally complex and incomprehensible.

But Bezos, the founder and CEO of the largest bookstore in the world, is wrong to be so skeptical of easily understandable stories. The narrative fallacy is actually a fallacy. Sometimes a story that appears to be complex is, in reality, quite simple. Sometimes it can be summarized in a sentence. Or even a single word.

The history of the Internet, which certainly appears to be as random and chaotic as any story ever told, is actually two simple stories. The first story—from World War II through the end of the Cold War in the early nineties—is a narrative of public-spirited technologists and academics like Vannevar Bush, Paul Baran, and Tim Berners-Lee, and of publicly funded institutions like NDRC, ARPA, and NSFNET. This is primarily a story of how the Internet was invented for national security and civic goals. It’s a story of how public money—like the million-dollar ARPA investment in Bob Taylor’s project to link computers—paid to build a global electronic network. And it’s a story of these well-meaning pioneers’ relative indifference and occasional hostility to the lucrative economic opportunities offered by their creation. Berners-Lee, who fought hard to make his World Wide Web technology available to anyone for free, even argued that charging for licensing fees for Web browser technology “was an act of treason in the academic community and the Internet community.”
¹⁰
Indeed, up until 1991, Internet commerce was an “oxymoron” since the US government maintained legal control of the Internet and required companies that sought access to NSFNET, the Net’s backbone, to sign an “Acceptable Use Policy” that limited such use to “research and education.”
¹¹

“There are very few second acts in the world of high technology,” argues Jim Clark, one of Silicon Valley’s most colorful entrepreneurs and founder of Silicon Graphics, Netscape Communications, and Healtheon. But Clark is wrong. High tech is dominated by successful financial second acts—his own, Steve Jobs’s, and, most significantly, that of the Internet itself.

The Internet’s second act began in the early nineties when the American government closed NSFNET and handed over the running of the Internet backbone to commercial Internet service providers. John Doerr, a general partner at KPCB who was originally hired by Tom Perkins, summarized this second act in a single sentence: “The largest creation of legal wealth in the history of the planet.” In this phrase Doerr captures how an electronic network, thanks to Doerr’s investments as a KPCB partner in Internet companies like Netscape, Amazon, Google, Twitter, and Facebook, has made him among the richest people on earth, with a personal fortune of some $3 billion and an annual income of close to $100 million.
¹²

This story can even be summarized in a single word:
money.
The Internet, to borrow one of Silicon Valley’s most hackneyed vulgarisms, has become “monetized.” It’s a curious historical coincidence. Just as the end of the Cold War led to the scramble by Russian financial oligarchs to buy up state-owned assets, so the privatization of the Internet at the end of the Cold War triggered the rush by a new class of technological oligarchs in the United States to acquire prime online real estate.

“Silicon Valley in 2014 is like Wall Street in the 80’s,” observes Kevin Roose, the author of
Young Money
.
“It’s the obvious destination for the work-hard-play-hard set.”
¹³

Like an express suddenly roaring past a freight train, the second version of the Internet replaced the first with remarkable speed. What is particularly striking is how few people successfully jumped from one train to the other. But one person who did make the leap was Marc Andreessen. Indeed, more than any other single individual, Andreessen was responsible for transforming the nonprofit Internet into a winner-take-all economy.

Andreessen had become familiar with the World Wide Web in the early nineties as a computer science student at the University of Illinois, where he was also earning $6.85 an hour working as a programmer at the National Center for Supercomputing Applications (NCSA), a National Science Foundation–funded research center attached to the university. The major problem with Berners-Lee’s WorldWideWeb browser, he recognized, was that it was forbiddingly hard for anyone without advanced programing skills to use. So, in 1993, Andreessen and a team of young programmers at the NCSA developed a graphics-based Web browser called Mosaic, with an easy-to-use interface that enabled websites to feature color pictures. “It spread,” Andreessen said, “like a virus,”
¹⁴
generating an estimated 342,000 percent increase of Web traffic in a year. At the beginning of 1993, before Mosaic’s release, less than 1 percent of Internet users were on the Web and there were only around 50 websites. A year later, Mosaic’s viral success had spawned 10,000 websites, with the Web now being surfed by 25% of Internet users.