Thursday, March 10, 2005


5 Years ago today, the Internet bubble began to deflate. Interestingly it wasn't a crash like 1987 or 1929. It didn't go out with a bang, but a whimper. For months, many of the most savvy thought it was a temporary correction and the fun would continue on after weeding out some bad apples- just a few bad dot.coms that never should have existed. Many never guessed that the whole thing was a house of cards- there were too many companies for too small a market opportunity and even the best of breed (Cisco, Intel, Yahoo, Amazon) were overvalued.

The Internet bubble was not just a stock market bubble. It was not just about the NASDAQ reaching 5,000 as it did 5 years ago. It affected the entire financial markets, from venture capital, to private equity, to creditors. It affected the guts of the biggest and oldest companies. It affected all of us. It wasn't just an irrational speculative mania- though that obviously played a role. A large company cannot speculate on its investments. It lives with the legacy of its decisions.

It was the frontier of new business opportunities ushered in by a new and powerful technology. What investors (VCs, stock pickers, business managers) got wrong was not that the Internet vision was completely crazy. What they got wrong was how long it would take for that vision to become reality and how to make real profits out of it. The Internet will transform the world as many hoped and expected but it will occur over 20 years of evolution not a 2 year revolution. Profits it turns out are also a lot harder to generate than it seems. When so much new value is created, it is tempting to think profit will follow. But that is not true. Think about email. Perhaps nothing else has had such a Transformative effect as email - altering human communication globally and permanently. And yet it is nearly impossible to make money from email. Its free. Its free because nearly anyone can create an email service. When something is easy to make and copy, it is hard to charge a lot because someone else can pop up and charge less stealing your customers.

These and other more nuanced realities more are key to understanding how to manage waves of innovation in the future.

To help in this process as well as have some fun, we're "celebrating" this birthday with a blogathon. A blog-wide echo chat about the bubble. The participants are growing. Contributing writings so far are: Andy Kessler, Om Malik, serial entrepreneur Ross Mayfield and financial whiz-kid, Paul Kedrosky


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