How the Internet Happened: From Netscape to the iPhone

by Brian McCullough

Prodigy attempted to compensate for the resulting bandwidth issues by actually discouraging users from using the service so much. The introduction of a 25-cent surcharge for each email a user sent over an allotted thirty emails a month led to a member revolt.

A monthly fee entitled users to a fixed number of usage hours per month. If a user went over the monthly limit, they were charged by the hour. On AOL, $9.95 a month got you five hours of unlimited access; each additional hour cost $2.95.8 Once you hung up, the connection was terminated.

America Online added friendly touches: “Welcome,” “You’ve Got Mail,” and when the connection was terminated, “Goodbye.” The voice was that of Elwood Edwards, a broadcaster and the operations manager of WFTY-TV in Washington, D.C., who was paid $100 for his trouble.

Over the next half decade, AOL would spend billions of dollars on its “carpet bombing” marketing campaign. At one point, 50% of the CDs produced worldwide had AOL logos printed on them.

Yahoo’s competitors, the search “engines” Excite, Lycos and Infoseek, were all filing to go public in Netscape’s slipstream.

In April of 1997, listings of Beanie Babies surged to 2,500 separate auctions, and eBay assigned them their own category. When rare and discontinued Beanie Babies suddenly started going for hundreds, even thousands, of dollars at auction, eBay reaped the attendant press attention thanks to its position at ground zero of the craze. Within a month, that single Beanie Baby category was responsible for 6.6% of the entire site’s sales volume.10 eBay was not exactly the company that Beanie Babies built, but Beanie Babies certainly brought eBay to the world’s attention.

For various reasons, the design, marketing and advertising startups sprang up around, and especially below, Madison Square Park and the Flatiron Building. This entrepreneurial “scene” acquired the nickname Silicon Alley, a sobriquet that many people claim credit for but which owes its popularization primarily to New York–based advertising startup DoubleClick. DoubleClick, founded by Kevin O’Connor and Dwight Merriman, would create the first large-scale advertising network and marketplace on the web, brokering and delivering the banner ads that would generate revenue for many of the advertising-supported websites in the late 1990s.

Millions of GeoCities homepages were created, often by individuals, with most being nothing more than simple personal pages with variations of a “Hello World” message. Similar plug-and-play homepage hosts sprang up called Tripod and Angelfire, both allowing users to express themselves directly by producing rudimentary “profiles.” GeoCities and the like were “social media,” or at least, an early form of it. What they weren’t, precisely, was “social networking” because despite the fact that GeoCities grouped like interests together, the focus was not exactly on mapping social connections. Not yet.

The four biggest search sites, Yahoo, Excite, Lycos and Infoseek, all saw their share prices increase an average of 390% over the course of 1998.37 All of these various players, as they feverishly pieced together features to compete in what were called the “portal wars,” went a long way to creating the competitive froth that would set the stage for the dot-com bubble. Before dot-com IPOs were an everyday occurrence, the portals, with their ballooning stock prices, were able to fork over big money (at least on paper) to construct their arsenal of user features.

Everything changed over the course of 1998. If you bought $1,000 worth of Yahoo and Amazon each at the time of their IPOs, over the course of 1998—merely twelve more calendar months—you would ring in the new year of 1999 to discover that your original $1,000 investment in Amazon was now worth $31,000 and your $1,000 worth of Yahoo stock had ballooned to $46,000. Turning a $2,000 investment into $77,000 is phenomenal on any time scale, but to do so in less than thirty months is unheard of. And the funny thing was, getting this sort of return wasn’t exactly rocket science. In the twelve months of 1998, Yahoo stock returned 584%, AOL 593% and Amazon 970%.5 These were three of the best-known, most talked-about stocks of the mid-nineties, widely heralded as the vanguard of the new economy that the Internet was supposedly bringing into existence. They were hardly needles in the haystack.

Books like Ray Kurzweil’s The Age of Spiritual Machines promised that technology might help us transcend death itself.

By December 1999, after more than two years in business, eToys could only boast lifetime revenues of $51 million. That was about as good as the combined yearly sales of seven Toys “R” Us real-world stores—and Toys “R” Us had nearly 1,500 stores worldwide. No matter. eToys went public in May of 1999, selling 8,320,000 shares at $20 apiece. On the first day, the stock leapt to $85, before settling at $76, a 282% pop. eToys had a market capitalization of $7.6 billion, compared to Toys “R” Us’s $5 billion. Toby Lenk’s 7.36% share of the company was worth a cool $559 million.

On the East Coast, two companies, Kozmo.com and UrbanFetch, took instant gratification a step further: both promised same-day delivery. But the question was, could anyone make money doing that? That pint of Ben & Jerry’s a customer ordered on a rainy afternoon? Kozmo would send it to them for less than it would cost to buy at the local bodega across the street. And Kozmo still had to pay the army of bike couriers who made the delivery. It was retail without the overhead of real estate, sure, but what about the costs of warehousing, of labor, of the website and logistical back-end systems? Neither Kozmo nor UrbanFetch were much worried about this. Ubiquity came first. Profits later.

a talking dog–like sock puppet that would commiserate with real-life pets in a series of commercials (tagline: “Pets.com. Because pets can’t drive.”). The puppet was voiced by the comedian Michael Ian Black, but was deliberately nameless, “so consumers would always have to say ‘Pets.com’ when referring to it.”33 Soon, the puppet was airing in radio and television spots nationwide. Pets.com paid nearly $2 million for an ad on Super Bowl XXXIV and the puppet became a float in the 73rd Annual Macy’s Thanksgiving Day Parade.34 After appearances everywhere from Live with Regis and Kathie Lee and Good Morning America, to “interviews” in the pages of People and Entertainment Weekly, Pets.com began to license the puppet as a popular toy for children. In a single quarter, Pets.com reportedly spent $17 million promoting the sock-pooch. Was it worth it? Well, not when you consider that in that same quarter it had only $8.8 million in total revenue.

Mercata.com raised $89 million to create a group-buying marketplace where thousands of people would buy items in bulk in order to get better pricing. One day after its IPO was canceled, the company declared bankruptcy.

The Silicon Alley 100 was the yearly status list of the magazine Silicon Alley Reporter

The AOL/Time Warner merger was announced on January 10, 2000. On April 3, 2000, Judge Jackson’s final ruling suggesting the breakup of Microsoft was announced. At the time, these two events felt epochal—clarion signals ushering in a new era in the technology and even media industries. Instead, from the perspective of hindsight, they look more like historical footnotes, bracketing the weeks when the dot-com bubble finally burst.

FOUR DAYS AFTER the AOL/Time Warner merger announcement, on January 14, 2000, the Dow Jones Industrial Average peaked at 11,722.98, a level it would not return to for more than six years. The tech-heavy Nasdaq peaked on March 10, 2000, at 5,048.62, a level it would not reach again until March 2015. From that March 2000 peak, all the way down to the trough it reached on October 9, 2002 (the bear market bottom would be 1,114.11), the Nasdaq would lose nearly 80% of its value.

Yahoo was down 97%, from an all-time high of $432 per share to $11.86 on August 31, 2001, its market cap down to $6.7 billion from $93 billion. That $1,000 put into Amazon’s IPO, which had climbed in value to more than $61,000 at the bubble’s height, was worth about $3,400 at the end of September 2001, when Amazon was trading under $6.

The obvious move was to license PageRank to one of the existing players, and indeed, this is what Page and Brin attempted to do. They met with everyone from the Yahoo founders Jerry Yang and David Filo, to another search pioneer, Infoseek’s Steve Kirsch. No one was interested. The closest they came to making a deal was when Page wrote up an extensive proposal to Excite’s leadership, suggesting they replace Excite’s existing algorithms with his. Doing so, he calculated, would generate an additional $47 million in revenue for the search engine. “With my help,” Page wrote in his proposal, “this technology will give Excite a substantial advantage and will propel it to a market leadership position.”9 All he asked for in exchange was a seemingly reasonable $1.6 million in cash and Excite stock—a nice little payday—and then he and Brin would return to finishing their doctorate work. Excite countered with $750,000, which Page and Brin rejected. The incumbent search players’ failure to scoop up the PageRank technology has become infamous in business lore as one of the great missed opportunities of all time. Larry Page has, on a few occasions, suggested that the search companies were simply myopic. “They were becoming portals. We probably would have licensed it if someone gave us the money. . . . [But] they were not interested in search,” Page has said. “They did have horoscopes, though.”10

They named the service Google, a play on the word “googol,” which is a 1 followed by 100 zeros. The idea was to suggest they were capturing the whole web, everything in existence. “The name reflected the scale of what we were doing,” Brin said later.13 Googol.com was not available, so Google.com became the URL of the public service.

By 1999, usage of the search engine was increasing by as much as 50% a month.15 From 100,000 searches a day at the beginning of that year, Google searches grew to an average of 7 million per day by the end of it.16 Overall traffic to the Google homepage was peanuts compared to the numbers a site like Yahoo was pulling down, but in the case of Google, its users came via word of mouth alone. Not a dime was spent on marketing or promotion. Rave reviews from the media continued to turn people on to the service. The New Yorker said Google was “the default search engine of the digital in-crowd.”17 Time Digital said: “Google is to its competitors as a laser is to a blunt stick.”18 Ordinary users simply told one another about how great and useful Google was. More often than not, users would become Google converts for life.

By stripping out the unnecessary (because they were unheard) noises in a sound file, music files could be made much smaller. Most music was easily compressed and a listener was none the wiser. “That’s an undergraduate project,” says Karlheinz Brandenburg, the Fraunhofer researcher who is called the “father” of the MP3.24 But the human voice was far trickier. It turned out that the key to mastering the nuances of human singing was an obscure a cappella recording of a minor hit from the 1980s, Suzanne Vega’s “Tom’s Diner.” Brandenburg successfully tweaked the MP3’s compression algorithm by listening to “I am sitting / In the morning / At the diner / On the corner . . .” over and over again, maybe 10,000 times, before he got it right. “To get it to the level that it’s really perfect, or near-perfect, for everything,” says Brandenburg, “that was work.”

In 1997, a nineteen-year-old college dropout named Justin Frankel released a software program called Winamp, which allowed users to easily organize and play MP3s on computers. Winamp was downloaded by more than 25 million eager MP3 devotees, and Nullsoft, Winamp’s parent company (which Frankel had formed with the Internet Underground Music Archive’s Rob Lord), was sold to AOL in 1999 for around $100 million.

By the spring of 2000, less than a year after launching, Napster had more than 10 million users.30 By the end of 2000, Napster could claim more users than even mighty AOL: around 40 million. And instead of taking more than a decade and billions of dollars to do so, Napster had attracted that many users on the backs of half a dozen barely postpubescent hackers and about $400,000 worth of hardware.

Advertising might have been the first industry the web disrupted, but Madison Avenue adapted to the change, quickly following our attention spans and our eyeballs as they drifted online. The record companies, in contrast, refused to budge as the habits and preferences of music consumers changed. It was never piracy that was the problem for the music industry (at least, not entirely). But rather, it was the stubborn refusal to adapt to a revolution in consumer expectations that has, at its root, truly bedeviled the record companies, and the television companies and the movie companies, and on and on and on over the course of the Internet Era. Infinite selection. Instant gratification. On any device. When it comes to digital disruption of media, it is almost never about free content or piracy, not at the core. It is always about giving people what they want, when they want it, how they want it.

In September 1998, a small company called Diamond Multimedia released one of the first portable MP3 players, the Rio PMP300. The PMP300 had only 32 megabytes of storage, so it could only hold about 30 minutes of music—half an album or so, at decent sound quality;

About a year before it sued Napster, the RIAA sued Diamond Multimedia. Before it had even heard of Napster, the record industry knew it didn’t want MP3 as a technology to catch on. But while Napster was eventually defeated, the RIAA lost the Diamond Multimedia case. The Rio PMP300 went on to become the first commercially successful portable MP3 player. As the author Stephen Witt has noted in his book How Music Got Free: A Story of Obsession and Invention, from the perspective of history, the music industry won the wrong lawsuit.

Jobs would later remember the development of the iPod as a series of serendipities. “We suddenly were looking at one another and saying, ‘This is going to be so cool,’ ” Jobs told his biographer, Walter Isaacson. “We knew how cool it was, because we knew how badly we each wanted one personally.”

When, in the summer of 2000, Netflix even offered to sell itself to Blockbuster for about $50 million with the express idea that Netflix would become the DVD channel for Blockbuster, thereby saving it from the costly transition of its inventory from VHS, Blockbuster said no.31 It still didn’t believe DVDs would catch on.

As early as 2002, Reed Hastings was telling Wired magazine, “The dream 20 years from now is to have a global entertainment distribution company that provides a unique channel for film producers and studios. . . . In five to ten years, we’ll have some downloadables as well as DVDs. By having both, we’ll offer a full service.”50 He was talking about video on demand. About Netflix becoming a studio and producing its own content. About streaming. All delivered via the Internet.

In a few short years, search ads would surpass traditional banner or “display” ads, and within a decade, Google would be generating more than $50 billion in revenue,18 having captured nearly 50 cents of every dollar spent advertising online.

After the early months of indifferent traffic, YouTube’s audience exploded faster than any previous website in history (including Google, Myspace and Facebook). By the beginning of 2006, the site was serving 3 million video views a day. Six months later, that number had grown to 100 million views a day.

YouTube was ground zero for things like that, for the birth of modern meme culture as well as the social media–celebrity ecosystem. The idea that random events or random people could “go viral” really entered the mainstream thanks to YouTube.

In a November 2007 News Corp earnings conference call, Rupert Murdoch himself dismissed this competitor, Facebook, as merely a “Web utility similar to a phone book.” Myspace, by comparison, had “become so much more than a social network. It connects people, but it’s evolved into a place where people are living their lives. A social platform packed with search, video, music, telephony, games.”38 Little did Murdoch know that, even as he said those words, the battle for social networking was already over, and Myspace would join SixDegrees and Friendster as an also-ran in the history books.

Four days later, more than 650 students had registered as users of Thefacebook. By the end of the month, three-fourths of Harvard’s student body was using the site daily.

But the main thing that affected Zuckerberg’s thinking was data. From the very first days, Zuckerberg was obsessed with watching how users actually used his site. While monitoring the behavior of his users, Zuckerberg was fascinated by the very real info his network could tease out, and how little tweaks he made to Facebook’s systems could affect user activity. He had inherited the Google guys’ obsession with algorithms. Zuckerberg ran some numbers and realized that, based on things like status updates and wall posts, he could predict with about 33% accuracy whether two members would be “in a relationship” within a week.

By the fall of 2005, fully 85% of American college students were members of Thefacebook and 60% returned to the site daily.38 Ninety percent logged in at least once a week.39 What product or service in any industry got used so obsessively? Parsing the server logs, Zuckerberg and the others could see user behavior that they termed “the trance.” Users would log on and then click and click and click and click, browsing people’s profiles for hours at a time. “Wanting to look people up is kind of a core human desire,” Zuckerberg said around this time. “People just want to know stuff about other people.”40 It was beginning to dawn on him how powerful harnessing that need-to-know was.

Facebook Photos was launched in October of 2005. It was actually a bare-bones application, lacking a lot of the features of more robust apps like Flickr. But it had one key innovation: if you uploaded a photo with a friend in it, you could “tag” them and they would receive a notification that you had posted a photo of them online. Facebook Photos took off right away. Within three weeks, Facebook hosted more photos than Flickr.50 After a month, 85% of the service’s users had been tagged in at least one photo.51 Zuckerberg and the rest of the team were amazed that an arguably inferior product could so quickly unseat the incumbents. The secret sauce had to be the network effects. Matt Cohler was one of the new wave of hires brought in to Facebook after the Accel investment. “Watching the growth of tagging was the first ‘aha’ for us about how the social graph could be used as a distribution system,” Cohler says. “The mechanism of distribution was the relationships between people.”52

From its launch in 2004 until open registration in 2006, Facebook grew to around 8 million users.73 One year after open registration, Facebook had 50 million active users.74 By the end of 2008, there were 145 million people on the service, 70% of them outside the United States.75 The next year, there were 350 million users in 180 countries. After open registration, the social-networking wars were over. Myspace, and every other social network, would become distant memories.

In the technology world, the ultimate success of a new idea is very much dependent on timing. Even great ideas that are quite obviously “the next big thing” can fail to deliver on their promise because the underlying technology or infrastructure isn’t mature enough yet. Streaming video was supposed to be big, going back to the days of Real|Audio and Broadcast.com, but it took the example of Napster and the advent of broadband Internet connections before YouTube could take off. SixDegrees couldn’t succeed because it was birthed in a world before ubiquitous digital cameras. Facebook got the timing right on that detail, but it also cracked the social-networking code by achieving critical mass just as another key technology was having its breakthrough moment. For many long years, mobile computing

BlackBerry users were the first people to confront the social etiquette implications of conversations and person-to-person interactions being interrupted by digital notifications. And they were the first to wrestle with the uniquely obsessive mindset that an always-on information device can engender. This pull of the “now” only got worse as BlackBerrys eventually gained web-browsing functionality and new applications such as the BlackBerry Messenger instant messaging service. The devices earned the sobriquet “CrackBerry” because users seemingly couldn’t tear themselves away.

The 800-pound gorilla of the cell phone industry in the late 1990s and early 2000s was Finland’s Nokia. In 1996, it released the 9000, the first of its Communicator series of phones. The Nokia 9000 opened up, clamshell-style, to reveal a full QWERTY keyboard. It had a web browser as well as digital camera connectivity. It could make calls, of course, and send messages, and had the now-usual suite of contacts, notes, calendar and calculator apps. But since cellular data plans were rare and expensive, the Communicator series was not a mainstream success. Too soon.

The entire computer, electronics and technology industry was converging on one singular device, one transcendent product that would seemingly be everything to everybody. And yet, few people seemed to care. All of these new features, all of these new technologies and computing innovations were converging inside the cell phone, pointing to a world of always-on, always-connected, always-updating information, but aside from those CrackBerry addicts and hard-charging professionals, most people didn’t see the point. Back in 1998, Steve Jobs famously told a Businessweek reporter that “a lot of times, people don’t know what they want until you show it to them.”27 In the case of the smartphone, in the case of the technology that would soon bend the entire arc of modern life toward the ubiquity of mobile computing, that would certainly prove to be true.

The first person to actually receive a phone call on an iPhone was Andy Grignon. He was in a meeting and didn’t recognize the caller’s number, so he hit the ringer switch to ignore the call. “Instead of being this awesome Alexander Graham Bell moment,” Grignon recalled that the first iPhone call was anticlimactic, “it was just like, ‘Yeah, fuck it, go to voicemail.’ ”31

the biggest headache, until late in the development period, remained the functionality of the software keyboard. The problem was finger size. If you tried to type, say, the letter “e,” your finger might trigger a range of other letters instead. The solution, as ever, came from clever design. Apple engineers used artificial intelligence techniques to create an algorithm that would predict which letter a user might want to type next. For example, if someone types the letter “t,” there is a very high probability that they will want to type “h” next. So, the letter “h” would, to the naked eye, look like it stayed the same size on the keyboard when, in fact, the “hit area” for the letter h would get bigger. After that, the “e” would likely be huge as a hit region. “The,” after all, is a common word. This predictive typing algorithm saved the iPhone from repeating the failures of the Newton.

Something people tend to forget about the first iPhone is how neutered it was. It was launched onto the nearly obsolete EDGE network. Cingular/AT&T was still in the process of building out its 3G network, so for that first-generation phone, users had to make do with snail-like data speeds. The first iPhone also lacked a GPS sensor, so even though you could use mobile maps in the first iPhone, the experience wasn’t as seamless or accurate as it is today. The first iPhone couldn’t shoot video, and didn’t even have a front-facing camera, so the era of the “selfie” didn’t come into being until the fourth generation of the iPhone, three years later.