Henry Blodget: The 10th Anniversary of the Dot Com Revolution
[Henry Blodget, a former Wall Street analyst, writes frequently for Slate.]
TEN years ago this month, the initial public offering of the Internet pioneer Netscape set off a dot-com boom that today is usually viewed as a sort of financial kindergarten recess, a regrettable free-for-all of idiocy and greed. Although this view does capture an aspect of the period - the arrogance and punch-drunk frivolity that come with easy money - it misses the big picture. It also implies that had we only been smarter and more disciplined in the late 1990's, we could have spared ourselves the pain and embarrassment that followed. History suggests otherwise.
The growth of the Internet has paralleled that of most industries based on revolutionary technology. Canals, railroads, telegraphs, telephones, cars, radios, personal computers - all progressed (or are progressing) through four phases of development: boom, bust, mature growth and decay.
During the boom phase, the success of a few visionary companies like Netscape inspires frantic experimentation and speculation, as entrepreneurs and investors try to cash in on the trend. Early entrants usually enjoy temporary success, but the number of competitors soon comes to exceed the initial opportunity, leading to a collapse. After the shakeout, a handful of survivors enjoy an extended period of growth and profitability. Finally, another technology shift leads to an era of decline, and giants often find themselves reduced to the stature of today's buggy-whip makers - or worse....
If the boom-and-bust pattern is so common, the obvious question is: why don't we learn the lessons of history? Why do we overpay for thousands of doomed upstarts (Netscape, eToys, Webvan) and underpay for future giants (Microsoft, Google, eBay)? Why do so many investors plunge headlong into the fray, only to later lose their shirts? The answer, in part, is that stock prices and strategic decisions are based on predictions, and predicting the future in an industry's early days is hard. ...
Read entire article at NYT
TEN years ago this month, the initial public offering of the Internet pioneer Netscape set off a dot-com boom that today is usually viewed as a sort of financial kindergarten recess, a regrettable free-for-all of idiocy and greed. Although this view does capture an aspect of the period - the arrogance and punch-drunk frivolity that come with easy money - it misses the big picture. It also implies that had we only been smarter and more disciplined in the late 1990's, we could have spared ourselves the pain and embarrassment that followed. History suggests otherwise.
The growth of the Internet has paralleled that of most industries based on revolutionary technology. Canals, railroads, telegraphs, telephones, cars, radios, personal computers - all progressed (or are progressing) through four phases of development: boom, bust, mature growth and decay.
During the boom phase, the success of a few visionary companies like Netscape inspires frantic experimentation and speculation, as entrepreneurs and investors try to cash in on the trend. Early entrants usually enjoy temporary success, but the number of competitors soon comes to exceed the initial opportunity, leading to a collapse. After the shakeout, a handful of survivors enjoy an extended period of growth and profitability. Finally, another technology shift leads to an era of decline, and giants often find themselves reduced to the stature of today's buggy-whip makers - or worse....
If the boom-and-bust pattern is so common, the obvious question is: why don't we learn the lessons of history? Why do we overpay for thousands of doomed upstarts (Netscape, eToys, Webvan) and underpay for future giants (Microsoft, Google, eBay)? Why do so many investors plunge headlong into the fray, only to later lose their shirts? The answer, in part, is that stock prices and strategic decisions are based on predictions, and predicting the future in an industry's early days is hard. ...