Broadband, EnronOnline, and the Search for the Next Big Story
As the core trading business matured, Enron kept launching new, harder-to-value ventures to keep Wall Street's growth story alive.
By the late 1990s, Enron's original gas and power trading business, however large, was no longer growing fast enough on its own to sustain the growth-company valuation the stock traded at. The book documents a recurring pattern in response: Enron repeatedly launched new, ambitious, hard-to-value ventures — each pitched to Wall Street as the next major growth driver — including EnronOnline (a web-based trading platform launched in 1999), a broadband trading business betting that bandwidth itself could be traded like a commodity, and weather derivatives.
Some of these were genuinely innovative ideas. EnronOnline, in particular, executed a real volume of legitimate trading business. What the book's reporting emphasizes is a specific pattern across nearly all of them: because they were new and hard to independently value, mark-to-market accounting let Enron book substantial projected profits from these ventures well before the underlying markets (broadband trading capacity, in particular) had matured enough to make those projections reliable.
| Venture | The pitch to Wall Street | The book's documented reality |
|---|---|---|
| EnronOnline | A dominant, fast-growing web trading platform for energy | Real trading volume, but thin, disclosed profit margins on much of it |
| Broadband trading | Bandwidth would become a tradable commodity like gas or power | The bandwidth market never developed the liquidity needed to support Enron's model — projected profits were booked well ahead of any such market actually existing |
| Weather derivatives | A new, uncorrelated market Enron could dominate early | A real but very small business relative to the growth story built around it |
For an established market like natural gas, outside analysts have decades of price history and comparable transactions to sanity-check a company's valuation claims against. For a market that doesn't really exist yet — tradable bandwidth being the clearest example — there's no independent benchmark at all, which means a company's own optimistic model is effectively the only available estimate, with no outside check on it until real transaction volume eventually develops (or fails to).
This created a specific, self-reinforcing dynamic: the harder a new venture was to independently value, the more Enron's own reported numbers for it became the market's de facto reference point, since there was nothing else to compare them against. A skeptical analyst had essentially no independent data to push back with — only a judgment call about whether Enron's own assumptions seemed reasonable, which is a far weaker check than being able to compare a company's claims against observable market prices or competitors' actual results.
Enron's broadband unit signed long-term bandwidth trading contracts and, under mark-to-market accounting, booked estimated future profits based on internal projections of how the bandwidth trading market would develop. Because no real, liquid bandwidth trading market existed yet to check those projections against, the reported numbers rested almost entirely on Enron's own assumptions about a market that hadn't been proven to work the way the model assumed — and, as the book documents, it largely never did develop that way before the broadband unit was wound down.
The book's broader point in walking through EnronOnline, broadband, and weather derivatives together, rather than covering each in isolation, is that the pattern itself — a mature company launching a rapid sequence of new, structurally hard-to-value ventures — is a more useful signal than any single venture's individual merits. Each new business was pitched, and often covered by the press, largely on its own terms; only looking at the sequence as a whole reveals the underlying pressure driving it.
- A company that keeps launching new, unrelated "next big thing" ventures is often signaling that its core business alone can no longer support the growth rate its valuation requires — worth noticing as a pattern, not just evaluating each venture individually.
- The newer and less-established a market is, the less any outside estimate can be independently verified — exactly the condition under which mark-to-market accounting is least reliable and easiest to lean optimistic on.
- When a company's own disclosures are effectively the only available reference point for valuing a new venture, outside scrutiny is structurally weaker than it is for an established business with real comparables.
- Looking at a sequence of new ventures together, rather than evaluating each launch on its own individual merits, is what actually reveals the underlying pattern and the pressure driving it.
- This closes out the course's look at how the story was built and sustained; the next part covers the specific warning signs that were visible from outside the company, for those who knew where to look.