Wall Streets current strategy with regard to dot-coms and other pure Internet plays echoes that dark rationalization from the days of the Vietnam War: We had to destroy the village to save it. The major difference is that in this case, it may be true.
The pain grows as companies fail, careers are dislodged or even destroyed, life savings are lost and a sense of doom grips the entire technology sector. Even strong, stable companies that should be immune are left wondering where the bottom might be. Yesterdays heroes are now market anathema.
In our more honest moments, dot-com entrepreneurs, venture capitalists, investors and the news media alike have to admit we have only ourselves to blame for a correction that often feels like some biblical purification. We flouted inflexible laws of economics, and now cosmic justice demands that the combination of unfettered greed and fantastical rationalizations that marked the last four years has to culminate in a cleansing correction.
It required a lot of creative energy to construct a fantasy so appealing that we were willing to stake our collective fortune and future on it, but once the fantasy caught on, it grew like a culture in a petri dish. I first realized this at a conference in Manhattan in the summer of 99, where a panel of business journalists had been assembled to discuss media coverage of the then-exploding dot-com market.
At that moment, billions of dollars were being invested each week in dozens of public offerings, with nary a cent of profit to be seen anywhere. So no one should have been surprised when a member of the audience asked if this was just an investment bubble, and one panelist observed, "Of course its a bubble. What else could it be? These investments arent based on any fundamentals. They amount to pure speculation." Yet, this assertion provoked a lot of squirming and tension on the dais, where several journalists rose to defend the fantasy. Their arguments basically came down to these:
The rules have changed. In the New Economy, net income is not the same as Net income. An old-fashioned bottom-line profit is pretty much irrelevant now, because the growth of the Internet as a commerce platform is so unlimited that the only important strategy is getting in early. Getting out is not going to be an issue.
Its a simple matter of faith. The initial public offering is not just the new engine of growth and wealth, but the mint of a new currency. And this is perfectly rational, since any tender, from bullion to bucks, has value only because people believe it has value. Clearly, the faith of smart investors in the Internet has redefined wealth: Dot-com shares are good for everything from compensating employees to acquiring other companies.
Its not a bubble unless it bursts. What seems like a feeding frenzy is really just unprecedented growth. We think.
What disturbed me most about these rationalizations was that they came not from stockbrokers or dot-com executives, but from business journalists. People who were supposed to be delivering objective coverage of the market were instead clearly caught up in what the Federal Reserve chairman would describe two months later as "irrational exuberance."
Fortunately for all of us, the Internet platform will survive the collapse of historys biggest Ponzi scheme. So if we have to destroy the dot-com to save it, lets get on with it. Lets clear the debris for mature, real-world enterprises that recognize in interactive technologies an opportunity for genuine, sustainable growth long into the future. As the Ford Motors, General Electrics and Wal-Mart Stores of the world increasingly integrate the Internet into their revenue streams and business strategies, they will stabilize the sector and, in turn, re-energize the entire economy.
In the end, Net must equal net. Its not as much fun, but its far healthier.