Commentary: Why The Dean Bubble Popped

Like the dot-coms, the candidate fell victim to hype and a bad business model

The dot-com bubble may have burst in 2000, but the hope and hype that nurtured it live on. Just look at last year's hottest political initial public offering, Former Vermont Governor Howard Dean's 2004 Presidential candidacy bears all the hallmarks of a high-flying Internet startup: waves of favorable publicity fueled in part by his novel use of the Net, the swarming of small investors, enthusiastic young 24-7 staffers, and a sense of certainty among true believers that they would revolutionize our way of life.

But rather than creating the next President of the U.S., the Dean movement became "the mother of all dot-bombs," says conservative commentator Keith Appell. Adds another veteran of both political and dot-com wars: "You had the equivalent of a tulip frenzy, with people betting that he was going to be successful because he was successful. Then it so quickly came tumbling down."

How did it happen? Much like the tech titans of the Nineties, the Dean juggernaut fell victim to its own hubris and gaffes: an unhealthy "burn rate" that depleted its venture capital, a belief that pouring money into advertising would create unstoppable momentum, and an unproven product -- the candidate himself -- that didn't live up to the hype.

What's more, Dean's campaign collapsed under the weight of a faulty business model: He counted on the same "first mover" advantage as did legions of dot-com companies, figuring that big early wins would wrap up the nomination and generate millions of dollars in new contributions. "During the Internet craze, companies confused 'the movement' and their momentum with making good products that people would buy," says former Clinton White House Press Secretary Joe Lockhart. "But when people looked underneath the hood, [Dean's] product wasn't there."

By the time Dean showed up before voters in the snows of Iowa, the buzz that had stoked the hype machine had given way to a feeding frenzy of negative publicity. And just as brick-and-mortar companies adapted to the challenge of the dot-com upstarts, Dean's rivals co-opted his populist message and honed their Internet presence. The result: crushing Dean defeats in Iowa and New Hampshire that precipitated a cash-flow crunch, a staff shakeup, and a belated acceptance of the fact that the revolution will be harder than anticipated. In the end, in politics as in business, the old rules still count. Says Republican pollster Bill McInturff: "They thought the political laws of gravity didn't apply to them."

Sound familiar? All that New Economy talk about the end of boom and bust business cycles should have been a reminder to Dean supporters not to believe their own hype. As it turns out, irrational exuberance isn't limited to Wall Street.

In the end, Democrats desperate to invest in a candidate who could beat George W. Bush flocked to two undervalued stocks: Massachusetts Senator John Kerry and North Carolina Senator John Edwards. Kerry's campaign in particular resembled the Old Economy behemoths. It reacted slowly -- and at first dismissively -- to the Dean challenge. But like the conventional companies of the '90s that eventually became Net-savvy, Kerry appropriated the themes that worked for his rivals. By the time the first vote was cast, Kerry was every bit as enthusiastic as Dean in his attacks on "Benedict Arnold CEOs" and powerful special interests.

And, as with the changes wrought by the dead dot-coms, Dean's impact will last long after he leaves the race. Dean has nudged American politics further into the Internet Age. Campaign blogs and supporter "meet-ups" have joined the political lexicon, online fund-raising has become ever more important, and the Internet has become a vital organizing tool. All of which is a good reminder that Dean's 2004 setbacks are not a result of his reliance on the Net but of his own political shortcomings.

By Richard S. Dunham

Before it's here, it's on the Bloomberg Terminal.