Why the collapse of the dot-com bubble led to the surveillance economy — and the techlash

This is part two of a six-part series based on my new podcast, Debugger. I am on a quest to find the Original Sin of the Internet with a series of experts who were there at the beginning of the Internet age. Next up: Bill Woodcock from the Packet Clearing House. He draws a straight line from the collapse of the dot-com bubble and the 9-11 attacks to the rise of the surveillance economy — and ultimately, technology’s ability to attack and manipulate our free will. I hope you’ll listen to Bill in this episode by clicking here, or clicking the play button image below. But you can also read or skim through our chat below:

[00:20:29] Bob Sullivan: So like TV, consumers watch the internet for free and tech companies…well, their customers are really advertisers and the more targeted these ads are the better the advertising spend. And so tech companies want to know more and more about their users. But the users never really signed up for all this. And now we believe all this data has been weaponized by those who would attack democracy.

It wasn’t always this way. In fact, my next guest thinks we ended up in this place specifically because of an attack on democracy. Bill Woodcock was in Paris when I spoke to him and he just finished a croissant for breakfast. From his perch at the Packet Clearing House, he really did help build the internet.

He was there at the beginning, but as you might remember from the beginning of this podcast, he sort of wishes he did something else with his life at the moment. Back at the turn of the millennium, tech’s boogeyman wasn’t disinformation or large tech companies vacuuming up information. The big fear was big brother and Bill is convinced there’s a straight line from one to the other, a connection that I really hadn’t considered before. I started by asking him if he agreed that democracy was under assault and technology was the current weapon of choice. He jumped right in.

[00:21:50] Bill Woodcock: When people can’t make informed decisions based on a shared understanding of the world…democracy as a principle, it doesn’t really apply our work anymore.

[00:22:03] Bob Sullivan: Okay. I find that answer, um, enlightening and depressing at the same time, particularly the way you framed it..I’ll admit I was on the same train. That technology was the greatest thing ever for freedom and information and all that. And now here we are suggesting that technology is literally tinkering with free will. Is that depressing to you?

[00:22:25] Bill Woodcock: Absolutely. I mean, this was not the internet that I signed up to build it at this point if I could, if we could unwind back to when I was, you know, 18 or so, and have it all to do over again, I would do something else because this is not, this is not a good outcome. Where we are right now. Is not as good in many, many ways as where we were 10 years ago. And 15 years ago,

[00:22:54] Bob Sullivan: [00:22:54] I tried to get Bill to pick a big error from the past, perhaps from 10 or 15 years ago. But he says things went South before that.

[00:23:02] Bill Woodcock: It’s always hard to sort of pin big societal changes on individual events, but the coincidence of 9-11 and the collapse of the telecom investment bubble. Those two things created the groundwork for where we are right now, the collapse of telecom investment in 2001, uh, or the collapse of the dot.com bubble.

If you want to look at it, at the application layer, a lot of companies that had just received VC funding went into panic mode because they didn’t yet have any real revenue to fall back on. And the rosy future that they had been looking forward to was very much in jeopardy. They’re having to lay people off.

The VCs were calling up and saying, ‘you know, actually your next traunch isn’t coming.’ They were panicking and then 9-11 happens and they all start getting calls from the government saying, “Hey, you know, we think maybe in the course of doing whatever it is you do, you might be, uh, producing metadata and we would be happy to buy any metadata you might have.” And so that it was a lifeline for a lot of them. A lot of them said, well, you know, we don’t have a business model here. We don’t have customers who are yet paying us enough money to cover our costs. And now somebody is offering to buy something. We didn’t even know that we had to sell. And the problem here is that as business people, they look at that and they say, well, we’re not really making money from these customers, but we can make money from the data about them

[00:24:55] Bob Sullivan: I do remember this time. Companies were trying to sell products online, competing directly with brick and mortar stores. You know, sneakers.com, guitars.com, sock puppets.com. And it wasn’t going well, even Amazon’s future wasn’t clear, but now bill says things change rapidly. Suddenly it’s all about eyeballs getting the most eyeballs to your site in whatever way you can.

[00:25:21] Bill Woodcock: So the limiting factor here. Is no longer how much money our customers have to spend or how much they like us or, uh, you know, even whether they trust us or want to do business with us, it’s just how many customers do we have and how much data do we have about each one.

[00:25:39] So how do you maximize that? You maximize it by reducing your retail price to zero for whatever it was that you were selling so that nobody will ever not take you up on it because of price. And you redirect all of your sort of customer service and security and everything, investment towards data collection.  And then you wind up with the companies that we have now that are maximizing data collection. And everybody assumes that the services have to be provided for free, and it’s all paid for by selling that data off the back end. So if you add that to AI to consume that data to the need for more GPU’s and power and space and cooling and spare parts and hands for that AI, you pretty quickly create a feedback loop where the purpose of the AI is to take people’s money and make them do things that somebody will pay you to make them do.

And the information feedback loop allows you to target each individual independently. So we’re no longer operating from a shared understanding of the world. We’re now each operating from a little surrounding bubble of information that is intended just to achieve that singular outcome, whatever that is, the knee jerk, ‘Oh, I’m going to vote this way,’ the knee jerk, ‘I’m going to send them some money,’ the knee jerk, ‘Oh, I’m going to put my credit card number in here,’ or ‘I’m going to click this link,’ whatever it might be. And you know, the Facebooks of the world, sit in the middle of that, making a little bit of money every time that happens and doing the data collection and aggregation. So, you know, where do you go from there?

[00:27:45] Bob Sullivan: [00:27:45] Okay. So I’ve not yet heard someone, so succinctly connect the dot-com bubble to this state of affairs we have today. And so maybe, you know, I’m going to, I’m going to maybe overstate your point and suggest that the original sin might have been the dot com bubble.

[00:28:04] Bill Woodcock: Well, not the.com bubble, but it’s collapse. That combined with 9-11. So the collapse, the dot-com bubble put this whole thing in a very precarious state. Because suddenly a lot of people were overextended and panicking and looking for an exit and 9-11 put the U.S. government in ‘Here, our wallet is open, give us something,” mode. And those two things together were the birth of the surveillance economy. Before that, you couldn’t really make any money on that data. That’s why people weren’t bothering to collect a lot of it, and store it and collate it and so forth because you know, nobody was under the impression it was worth very much. But when your primary source of money dries up and suddenly that’s worth more, your priorities change.

[00:28:57] Bob Sullivan: Okay. This is a pretty thick passage. So let me restate something here. I was in Seattle in the mid nineties, when everyone who just added dot-com to their name could get investment money. Let me tell you it was a non-stop party. Companies rented out mountains for annual picnics.

[00:29:14] Really. Then suddenly, it all dried up. Having a cute sock puppet wasn’t enough. The party was over. There were massive layoffs. My friends in newspapers were smirking at me, thinking digital news was dead on arrival. That newspapers would print money, forevermore. See how quickly things can change? Then suddenly the dot-com business was turned on its head. It became the dot-data business. Bill isn’t saying here that Uncle Sam saved all dot coms or anything like that. What he’s saying is that when intelligence agencies started showing web companies that data about customers could be valuable, maybe even more valuable than customers, well, that helps show the way to an entirely new business model — surveillance capitalism.

[00:30:06] Bill Woodcock: So if you look at the history of the Internet, it’s gone through three economic areas. The first era — 1968 to 1992 — was the communist era of the internet. It was all paid for, by the US Defense Department. It was centrally planned, centrally allocated. You couldn’t buy more, you couldn’t make it, you couldn’t sell it.

Uh, you, you got what you got and that was it. And all those went to them and you could use it for the approved list of purposes. And that was it. And then despite all that it was growing so popular that, uh, you know, another few doublings in size would have made it effectively, um, too expensive for the DOD to, to be willing to pay for.

And that was when Al Gore came along with the national information infrastructure plan, which privatized the internet and allowed the private sector to make it and buy it and sell it. And trade it. And so then we enter a nine year capitalist era of the internet in which, I mean, that’s what everybody remembers as the good times.

That’s when everything worked really well and everybody was having a good time and things were growing well. And if you wanted something, you could go buy it and you could have a reasonably straightforward relationship with the seller of the service. Because there were two parties in that relationship, not three or more.

Um, so then, you know, 9-11 and the bubble collapse came and we entered the surveillance era of the internet. And the problem is we’re now 19 years into that where, you know, it will shortly be the prevalent mode of the Internet’s economy. Uh, and the good times that a lot of our assumptions and patterns of thought are based on are becoming a footnote.

[00:32:17] Bob Sullivan:  And so now there’s this tight connection between the original digital big brother and what we now have as the surveillance economy. And perhaps the cost will be democracy.

I want to pick up exactly where we left off, which is. Um, the premise, which you may or may not agree with that, um, democracy is under assault and technology is a big weapon.

First of all, do you agree?

[00:32:44] Bill Woodcock: Yeah, absolutely. Uh, I think if you’d asked me that same question 10 years ago, I would have given you the opposite answer, I would have said no, the internet is helping democracy thrive. It is, uh, you know, enabling the Arab spring. That’s, uh, letting people bypass, remember firewalls and understand, uh, the politics, their country better than they can, you know, from the local media only.

But that was before this sort of horrible self-reinforcing loop of the surveillance economy and, uh, Personal information collection and brokering and AI and attention economy and social media all came together to begin tinkering with essentially with free will, tinkering with the knee-jerk reactions that the lower levels of people’s brains.

We now understand …. To produce this very pragmatic understanding of psychology …AI that is taking away agency .. and you know, any individual person can say, sure, that’s not me. But if you look at the numbers in the millions and hundreds of millions, uh it’s everybody.

[00:34:17] Bob Sullivan: It was hard to find optimism in Bill’s comments. But as we talked, it was also pretty hard to find blame in them too. I mean, he was there helping connect large networks. He helped write the first spam law. I asked him if anything could have been done was since you were there watching a lot of this and, you know, working to protect the internet in a lot of ways, did you know this was happening? Could it have been prevented by something this switched from sort of a product based internet to a surveillance based internet?

[00:34:49] Bill Woodcock: [00:34:49] I don’t know if there’s any one point, which any action would have skewed things in a different direction. I think the 9-11 happening is not something any of us chose and the telecom investment bubble collapse is not something any of us would have chosen.

So I think to the degree that any of us could have done anything to stop either of those events, we would have already. Anyway, I think AI development was going to happen. I think there are too many different benefits that are too obvious for anybody to be taken seriously.. 10 years ago, 20 years ago saying, you know, this is dangerous and it needs to be regulated before it gets out of hand.

The worst part is the attack on free will and the psychological weaknesses that are part and parcel of our evolution, that we are all subject to. And that we all share in common.

Don’t miss a post. Sign up for my newsletter

About Bob Sullivan 1648 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

Be the first to comment

Leave a Reply

Your email address will not be published.


This site uses Akismet to reduce spam. Learn how your comment data is processed.