Making Money in Technology
After the Bubble, page 6
What Was the Bubble?, continued
Prices for some of these securities seemed to imply that large companies—for example, Cisco--would
continue to grow at great rates into the indefinite future. This is unlikely: even tall trees don’t
grow to the sky.
Furthermore, young companies that were, as one observer put it, “more a story than a business”
went public. Many of these “stories” were awarded an instant billion dollars in market capitalization.
Today, quite a few of these stories are bankrupt, or out of cash and in danger of exchange delisting.
Internet mania—popular and professional belief that the Internet would disintermediate and
replace many companies and technologies—was rampant. It’s hard now to believe that anyone seriously
thought that multiple pet food companies could become big businesses on the Web—but this is the case.
Hindsight is twenty-twenty, and it’s easy to see these signs of excess in retrospect. At the time,
it was easy to get caught up in the upward momentum, and to believe the stories. Indeed, those skeptical
observers who saw the crash coming for the most part missed the great technology boom of the 1990s as
well as the crash. Like a stopped clock, they were right twice a day.
What Caused the Bubble to Burst?
No one thing caused the bubble to burst. There were many factors. Some of the blame undoubtedly
goes to Alan Greenspan’s Federal Reserve Board, which repeatedly raised interest rates starting in mid-1999.
From the viewpoint of the technology industries, there were some other fundamental issues. First, the last
years of the 1990s saw a huge introduction of innovative technologies at the enterprise and line business
levels. There is only so much that can be digested at any one time, and businesses needed to stop to
implement and digest their technology purchases.
On the consumer side, by the time the decade rolled to a close, many people decided that they didn’t
really need to upgrade their PC--or buy a new cell phone.
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