Commentary
on Chapter Five of “Discovering Artificial Economics”
I found the process by which railroad networks expanded and Chicago became “where the West began” to be very interesting. Many analogies can be found between it and what happened in the 1990’s with the Internet and dot-com expansion.
As we read in the excerpt, in the first half of the 19th century, as the U.S. railroad network started to expand westward, people and investors asked themselves which would be the leading gateway city to the west. While the expansion was happening, it was hard to figure out what were the decisive characteristics that would make some particular city a “winner”. Geographical location was one, and based on this Chicago and St. Louis seemed to be the best ones. There were several other things that people kept in mind back then while doing their guesses, such as natural resources, transportation routes and weather. The author, looking back, suggests looking for positive feedbacks.
When the Internet and the dot-com frenzy was happening in the 90’s, investors and the public were also wondering which ones, among all the nascent Internet sites and dot-com companies would be the winners: those who would attract most people, prevail and get most revenues. Most people expected only a few of all of the sites to survive and make up for what had been invested in them.
In the case of Internet sites, location is not geographical, but created by links to other sites, which can be changed without having much to do as to where the site’s servers are physically located. Therefore, there doesn’t seem to be much distinction between a site that is physically in the west coast or in the east coast or anywhere in the world, as long as the site has proper bandwidth and small time responses. This last constrain, of course, limits the “winners” mostly to North America and Europe, since transpacific connections usually have longer delays, and countries in other geographical areas are usually bandwidth-limited.
Then, we take a look at positive feedbacks. In the case of services such as eBay, the positive feedback is obvious: having a large pool of customers will make it attractive for a new customer to join eBay instead of a fairly unknown auctioning site. In the case of Google, for example, ease of use and superior technology provided them at their beginning an edge over other search engines that had already an established search reputation such as Altavista or Lycos. After a while, word of mouth became a positive feedback that increased their use among people.
Now, about the other factors that people kept in mind back then while doing their guesses, there are also interesting direct analogies. The natural resources surrounding a particular city are considered because these are the benefits that people can get by going there. Therefore, they could be assimilated to the content of a site: what the user gets by going there. Transportation routes to a destination is a direct analogy of bandwidth to a site. Finally, climatic forces that determine the weather, which affects whether things work smoothly or not, whether people feel at ease living there or not, can be analogous to the technological reliability of a site: is it always up and running fast, or does it crash easily and constantly.
Finally, during the 19th century there was a lot of land speculation and boosters. Needless to say, during the dot-com bubble both were there as well. However, from the reading we do not know if the bubble burst as well back then.
It would be interesting to have a good map of how things were back in, say, 1995, and try to apply the factors that made Chicago become the gateway city to the west in finding the most promising Internet sites and then verify if these coincide with what actually happened.