eWEEK at 30: Web Expansion Drives Frenzied Dot-Com Boom and Bust
"People were being highly speculative [in the stock market], knowing that the Web was going to be big, but having no idea just how big," said Gardner. "In the telecom industry, they overbuilt for network capacity at that time, but 10 or 15 years later, that capacity was fully filled. So they weren't wrong," but their timing was off. "We've seen this time and time again," he said. "People come in, and they want to make a killing. They were gambling instead of investing. We've seen this around early mobile, around news media and content, and around social media. This is what happens when technology and Wall Street collide." Some of those early dot-com companies could see what was coming, but they reacted in the wrong ways, said Gardner. "The idea of doing commerce on the Web was right. What was wrong was that it would be highly specialized like a boutique, rather than like a department store." Roger L. Kay, principal analyst for Endpoint Technologies Associates, said there is "a tendency to go into frenzies" in the marketplace. "Look at Twitter [today]. Its growth is conceded to be in the future. If you're talking about hype cycles, then 2000 to 2001 represented the popping of the hype balloon. Everyone wanted in on this wonder concept, the Internet business."In the end, though, even the dot-com crash was a good lesson for everyone, he said. "We learned that there has to be a viable business there and not just a crazy idea." Some of the entrepreneurs thought that they would succeed if they started a site and it attracted a lot of people who thought it was cool, Kay said. "We learned that you can't do that" and expect success, he said. Dan Kusnetzky, principal analyst at Kusnetzky Group, was working as an analyst for IDC during the 2000 to 2001 dot-com conflagration, and said that he remembers that "people were making decisions based on buzzwords, rather than about what the words meant." That was a huge factor in how investment mania took over and pushed common sense to the side of the road, he said. "Often, they didn't have clear views of the technologies, the competitors and how the technology would be used, or even who were the targeted customers," said Kusnetzky. "They just had this interesting idea for technology and went out and got funding and they built it. It was the 'build it and they will come' idea." Kusnetzky said he still sees this behavior today in the business marketplace. One of the hallmarks of the 2000 to 2001 dot-com bust was the eagerness of many executives to give themselves and sometimes their employees large salaries, gifts and perks instead of investing money back into their newfangled companies, said Kusnetzky. This was the start of the era when dot-com startups would spend millions of dollars for television commercials during the Super Bowl as a way to grab consumers' attention.
Today, what we see is more of a reality of the Internet, said Kay. "We see companies fail, but not whole segments. The Amazons survive. Amazon hasn't been profitable yet, but it has taken huge revenue growth and invested it."