Arrogance, Greed, Optimism Fueled the Internet Bubble
THE INTERNET BUBBLE may have burst, but don't worry. From the people who brought us
"profits don't matter," there's already a new mind-bending mantra: Failure is good.
This new philosophy, espoused by everyone
from Amazon.com's Jeff Bezos to the top
venture capitalists, perfectly captures the
arrogance that is a defining legacy of the Net
boom. What they mean is that culling the
failures should ease competition and improve
the odds for the survivors. At some lofty
theoretical level, the digerati probably have a
point.
But here in the real world, where businesses shut down, people lose jobs
and investors watch their assets evaporate, failure is not a good thing at all.
Ad agencies that fattened up on big-spending startups now see business
dwindling. College students who once had IPOs in their eyes are frantically
revising career plans. From the Valley to the Alley, economic development
officials fret about the outlook.
The dot-com balloon, which once seemed
to float effortlessly to new heights, plummets
before our eyes. (Hot air can carry you only
so far.) Yet in the midst of this turmoil, the
Internet's leading lights glibly proclaim that
it's all for the best. It's that kind of doublethink that convinced a whole lot
of people over the last two years that anything Internet-related was a sure
thing. For a while it seemed that risk was dead. Now we know better.
"A lot of people don't understand that ideas are cheap and execution is
hard," says Shyamala Reddy, a young Internet veteran in San Francisco.
At age 33, Ms. Reddy has worked at four dot-coms in four years, and
watched friends and colleagues toil through cycles of exuberance, then
stunned disappointment, when ideas failed to morph into billion-dollar
market capitalizations.
Why didn't they see it coming? After all, the
dot-commers embraced risk. They prided
themselves on their willingness to gamble and
used it to justify their lucrative stock-option
plans. Unfortunately, at the extreme far end of
the risk curve, people lose perspective. The difference between a risky but
worthwhile business and an idea with no future becomes imperceptible. "A
combination of arrogance, ambition and lack of experience is lethal," Ms.
Reddy says.
Worse, the culture of the Internet took the can-do attitude, usually a virtue,
to new and destructive extremes. Startups were dedicated to achieving the
impossible -- launching companies in weeks, attracting millions of
customers in months. In that environment, anyone who dared voice
reservations about a strategy or goal was quickly pegged as lacking the
right stuff. Voices of reason were dismissed as voices of wimpiness.
Meanwhile, those who never made the jump
into the dot-com wonderland watched as
one friend or colleague after another took
the plunge and agonized: Were they, the
ones left behind, the real wimps? As with
wallflowers staring out the window at a massive courtyard party, it became
difficult not to feel left out.
Throughout the New Economy, it became impossible to find anyone who
would point out the emperor's distinct lack of apparel. Entrepreneurs,
VCs, Wall Street's investment banks, caffeine-fueled day-traders, even the
Old Economy companies spiffing themselves up with a bit of e-business
strategy -- practically everyone had a stake in watching the boom continue
to rocket skyward.
Anyone who might sound an alarm, no matter how justified, knew
subconsciously that such an act was tantamount to telling a bunch of
depositors that their bank is insolvent. The ensuing bank run was sure to
damage everyone, as we are now starting to see. In the movie "It's a
Wonderful Life," Jimmy Stewart sought to stop the stampede at the savings
and loan by pointing out that the depositors' funds were tied up in tangible
assets, the houses of their neighbors. When the run on the dot-com bank
began, the assets were nowhere in sight.
Even as consumers, we all got caught up in
the boom at some point. And to be fair, who
could blame us? The Internet is a shiny new
toy, and it can do all sorts of cool things.
Search engines, instant messages, online
stores and a dozen other convenient
technologies have rapidly become
indispensable in everyday life. Try to imagine
life at home or work without e-mail. Think
about how the Web changed investing,
turning the brokerage business upside down
in the process. And through it all, in one
mega-IPO after another, the Net proved an
unprecedented engine for the creation of wealth.
Yet even as our electronic mailboxes overflowed, how many of us picked
up on the clues around us? The overhyping of online shopping is probably
the most dramatic example. While everyone was busy hailing Amazon.com
and eBay as masters of the new universe, and the halo spread to all online
retailers, few stopped to notice how often they and their friends continued
to patronize good old bricks-and-mortar stores.
The fact is, shopping online can be as
annoying as a crowded day at the mall. Web
pages load slowly, and you have to wait days
before your merchandise arrives. What made
us think that a glorified version of catalog
shopping was going to put Wal-Mart out of
business? Embarrassment, mainly. After years of underestimating the
potency of the online world, people grew tired of being wrong and the
pendulum swung to the other side -- all the way.
In the months ahead, as more companies fail and the ripples continue to
spread throughout the economy, a lot of people will regain their perception
of risk as something that carries consequences after all. Instead of the easy
option of declaring that the Net is the answer to all questions, executives,
employees and investors will confront tough choices, like when to jump
ship or shut down a flailing business, and when to push ahead.
A phrase circulating around the dot-com
world a lot these days is "the end of the
beginning." It's undeniably apropos, but it took
me a little while to realize why it sounded familiar. Years before many of
the dot-commers were born, it was used by astronaut Eugene Cernan to
describe his Apollo 17 mission, the last manned flight to the moon.
One could do worse than the heady days of the moon missions when
seeking a metaphor about the dot-com explosion. Back then, everything
seemed possible. But nothing could keep that kind of momentum going
forever, and meanwhile plenty of other problems loomed. Whether you're
an astronaut or dot-commer, it's simple. Once the magic wears off, things
are never the same. |
