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Wednesday, September 29, 2004

What The Bubble Got Right By Paul Graham

Paul Graham, Author of the book Hackers & Painters spoke and wrote about what the bubble got right recently. Key highlights:
- The Internet genuinely is a big deal. That was one reason even smart people were fooled by the Bubble.
- Recognizing an important trend turns out to be easier than figuring out how to profit from it. The mistake investors always seem to make is to take the trend too literally. Since the Internet was the big new thing, investors supposed that the more Internettish the company, the better. Hence such parodies as Pets.Com . In fact most of the money to be made from big trends is made indirectly. It was not the railroads themselves that made the most money during the railroad boom, but the companies on either side, like Carnegie's steelworks, which made the rails, and Standard Oil, which used railroads to get oil to the East Coast, where it could be shipped to Europe.The Internet will have great effects, and that what we've seen so far is nothing compared to what's coming. But most of the winners will only indirectly be Internet companies; for every Google there will be ten JetBlues.
- Some keys to winning in the internet economy -"First, the Internet lets anyone find you at almost zero cost. Second, it dramatically speeds up the rate at which reputation spreads by word of mouth. Together these mean that in many fields the rule will be: Build it, and they will come. Make something great and put it online. That is a big change from the recipe for winning in the past century".
-During the Bubble, optimistic analysts used to justify high price to earnings ratios by saying that technology was going to increase productivity dramatically. They were wrong about the specific companies, but not so wrong about the underlying principle. I think one of the big trends we'll see in the coming century is a huge increase in productivity.Or more precisely, a huge increase in variation in productivity. Technology is a lever. It doesn't add; it multiplies. If the present range of productivity is 0 to 100, introducing a multiple of 10 increases the range from 0 to 1000.
This high-tech guru's essays are a joy to read in content, style, and wit. His insider view of the entire process of a startup is rivetting, and his guide on how to do it should be required for all high-tech gamblers and futurists betting on High Tech and New Economy.

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