Five years ago this week, at the height of the dot-com stock frenzy, a young Bellevue company called InfoSpace was worth more than Boeing.
Wall Street analysts hailed the startup, which promised to bring the Internet to everyone’s cellphone, as “a new Microsoft,” and its charismatic leader, Naveen Jain, as a visionary.
Microsoft co-founder Paul Allen had hundreds of millions invested. Small investors such as Bev Hess, a real-estate agent in Phillips, Neb., poured their retirement savings into what appeared to be a sure bet.
At its peak, InfoSpace was the Northwest’s biggest Internet business, worth more than $31 billion. Jain, a man obsessed with being more successful than Bill Gates, was himself worth $8 billion. He bought a palatial waterfront home in Medina down the street from his idol and another nearby on Mercer Island, along with two yachts and a piece of the Seattle SuperSonics.
What Paul Allen, Bev Hess and hundreds of other shareholders didn’t know was this: InfoSpace’s success was an illusion, created by lies and deception.
And there is this sidebar:
Retirement Savings Vanish
Bev Hess, a real-estate agent in Nebraska, scrimped for 42 years to save $120,000 for her retirement. It took less than a year for her nest egg to shrink to $5,000 after investing in Internet stocks such as InfoSpace.
Hess plunged into InfoSpace after reading glowing business-magazine profiles about Naveen Jain and his grand plans to build another Microsoft.
“I thought he was one smart dude, kind of like Bill Gates,” she said.
She bought 350 shares at $114 a share for $39,900. Shares kept climbing to over $260.
When InfoSpace stock fell in March 2000, she didn’t sell because she believed it was a “good, viable company” that would bounce back. It eventually crashed to less than $1 a share. Her InfoSpace holdings are now worth $1,450.
She now realizes that Jain’s rosy press was all hype.
The funny thing about this to me was that this guy seemed like a blowhard the one and only time I met him and I couldn’t see what he was doing that was even interesting, let alone world beating. But there he was. He was booked on Big Thinkers by ZDTV bookers and I had to interview him. All the talk was puffery and there was no insight or vision or anything. I was baffled by it. I’m now thinking that Paul Allen had something to do with the booking since he was an investor in InfoSpace and owned TechTV although the booking may have predated his ownership.
Big Thinkers was a show started by one of my producers on Silicon Spin. It was a quasi-rip-off. And the guy who started it eventually quit the network and they asked me to do a few shows. Of course I hated this show and the entire way it was produced. And the guests they booked were often self-absorbed blowhards. Even when I had a good guest the format of the show was so stiff that the conversations never got off the ground. I was blamed for it being so dull, of course, despite the fact that two other people (maybe three) had tried to make it work too.
Related Link:
Forbes fawned all over this guy
Here’s the real scandal here:
After a Seattle federal judge ruled that InfoSpace founder Naveen Jain broke insider-trading laws, attorneys at the Securities and Exchange Commission sprang into action.
Rather than investigate Jain, though, the SEC rallied to his defense.
What’s going on here?
I was researching the Apple SLAPP suit today, to see what’s going on and I ran across the same thing s linked in a Wired story. http://www.wired.com/news/mac/0,2125,66821,00.html
John, you forgot the link to the main story. It’s worth reading in its entirety:
http://seattletimes.nwsource.com/html/businesstechnology/2002198103_dotcon1main06.html
The blowhards are always found where the buzz is; there are always suckers that buy into the buzz.
Some people seem to be surrounded by a talented manipulation machine that makes them untouchable, reading those links certainly makes me think this guy is one of them.
Some people are just smart weasels that manage to stir the pot but never get fried (Yassar Arafat comes to mind).
Great story and links, John.
Oh, yeah, dogpile sure was novel.
Is Jain still living down the street from Billy?
Next Chapter Lucent.
The big red zero Logo should was the hint.
Most informed IT people could see through it all at the time.
I saw it personally, even in my own little country, though not with this sort of repercussions. I had to work in a project that was all smoke and mirrors, led by a long-haired ‘guru’ who was basically a soft-spoken incompetent. The company I was in managed to draw the equivalent of millions of euros from the Portuguese government, all for a non-working project that just went on and on and on with practically no results…
I think the biggest cause for this sort of ‘pseudo-guru’ effect is the greed of uninformed business people (are there any informed ones?). When any of these startups starts climbing in the stock charts, they all seem like the next ‘hot’ thing, even if they’re all hot air – the investors don’t know, so they keep the money supply open – and the stocks go higher and higher. In this sort of situation any jerk who talks fluently and has a fertile imagination and mixes some jargon into his discourse can drive the investor-cattle anywhere…
If we, tech people, talk against the guru, then it’s because we’re just jealous or something, and wanting a piece of the action…
But there always comes one day someone finds out that the guru’s idea isn’t profitable at all, so he/she pulls out.
And so it begins.
Geez, you acquiesced to the notion of the guy being a “Big Thinker”. Perhaps the SEC dweebs were regular watchers of your show and came to the naturally logically-inferred conclusion that one of Dvorak’s Big Thinking blokes couldn’t possilby be all that bad.
Infospace marketvalue bigger than Boeing goes along with the other signs of the “Great Bubble”.
Cisco having the highest marketvalue for a short time
NYSE itself actually contemplating going public
People saying “Warren Buffett is out of touch”
I hadn’t even heard of this company. I must be out of touch. Thanks for the info John.
Russell
The Net is full of crap. People buy these tech stocks and then the whole thing comes crashing down. Ebay is doing free ads now, so companies that are selling ads could see their bubble bursting or shrinking. Maybe it will be free auctions next. It’s always the next big thing on the Net. I don’t mind paying auction fees, but it would be nice if the fees kept going down or holding steady. The free ebay ads could hurt Google. Google could do auctions too. Somebody is going to do something. I have no idea what it is. I think online ads will cost nothing soon, they are next to nothing now. Too bad we can’t all buy our gasoline online and save some money that way. I’d prepay on the Net to save ten cents a gallon on gasoline. I’d buy 50 or 60 gallons a transaction and wait a couple of days for a card in the mail.
BTW, John,
Whatever happened to Cokie Roberts’ daughter. Her occasional stints on your show made it more interesting for some of us.
And your snide asides kept me coming back to TechTV ’til they killed it. Good job.
What’s going on here? It’s the same as the Savings & Loan deals in the 80’s. People figure out the system or a create a new system, bait the suckers, everybody makes a lot of money and when it is over people say how did that happen and gee whiz they should make regulations to protect dumb people with money. I happen to think that there are a few dotcom darlings today that are not sustainable. People want to invest, they know the risks. Let them lose their money if that is their thing. People are goofy, what else is new? The company is worth $60 billion or you pick a figure and it produces nothing, the stock goes up and the whole thing gets blown to bits. You lived without it before, but it seems terribly important. The venture capital folks have to eat too. You can’t eat software.
When bloggers can bankroll the bucks needed to conduct this investigation, only then will they have truly earned any right to start saying that they’ve replaced journalists as the primary source for news.