The silver lining
From a purely practical, nonfinancial level, no one is denying the Internet's lasting benefits: Email has revolutionised communication; children can research school reports on the Web even if they don't have encyclopedias or live near libraries; and the homebound and elderly can become part of global communities, sharing their world with others of similar persuasion. In addition, consumers have bought items ranging from books to automobiles at deep discounts from e-commerce companies selling goods at a loss to build market share.
But those discounts most often have come at investors' expense. And many skeptics are chalking up the boom not to the underlying technology surrounding the Internet, which they dismiss as no more significant than the dawn of catalog retailing, but rather to global economic conditions and timing.
Ultimately, they say, the late 1990s Internet bubble will go down as a period of temporary insanity, an international giddiness no different from the Dutch tulip craze of the 17th century, when gullible investors paid $300 for a single bulb. And those who profited from the Internet bubble may largely be remembered as deft con artists or lucky fools.
One favorite target of blame is the research companies and publications that spouted reports of virtually infinite growth. Typical forecasts from both Internet consulting companies and blue-chip consultancies showed growth of PCs, DSL access, online shopping, demand for ASPs (application service providers) and other areas shooting up at a 45-degree angle for a year or two, then ratcheting up to a 60- or 70-degree angle for the foreseeable future.
"Hockey stick charts"
In their defense, these researchers point to pressure from companies and others in the industry that pushed for higher numbers, projections so common that researchers gave them a nickname: "hockey stick charts."
"We were all duped by this vision that it was only going up," said Berge Ayvazian, chief executive of The Yankee Group and one of the few researchers willing to openly admit his role in the frenzy. "We were actually criticised for being way too conservative in our estimates. We were under considerable pressure from Internet companies that wanted to use this to get more venture capital funding, to make this hockey stick even steeper."
It was only in the past several months that forecasters seemed to catch wind of the changing economy. Like a technology company that can't meet its financial expectations on Wall Street for its next quarterly report, research group IDC issued a revised fourth-quarter report on PC sales in December 2000.
IDC cut its original fourth-quarter projections about 10 percentage points, from 21.2 percent year-over-year growth to 10.2 percent. But even that proved too bullish. By mid-January, IDC reported only 0.3 percent year-over-year growth in fourth-quarter PC shipments in the United States.
Such disappointing revisions, repeated in other sectors throughout the industry, have been a bitter pill for thousands of workers who took part in the Internet land grab, and they underscore another weak link in the digital economic chain, the over-reliance on stock options.
In addition to research companies, the increasingly long shadow of blame cast by historians includes regular working stiffs, many of whom got greedy during the mid-1990s when the stock market took off on the longest peacetime bull run in U.S. history. Many came to believe they were entitled to vast sums of stock options that would be their ticket to fortune, or at least early retirement.
Between 1992 and 1998, the compensation of the average CEO almost doubled, to $8.4 million, according to a survey of Fortune 200 companies by Pearl Meyer & Partners. And $4.6 million of that average (more than half of an executive's total compensation) was through options grants. In 1999 alone, the unexercised options of Intel CEO Craig Barrett were worth more than $100 million. It's hard to overstate how dramatically the pendulum has swung since the March 2000 stock market peak. Instead of attending lavish launch parties to celebrate companies going public, many workers in San Francisco and New York are instead bringing their resumes to pink slip parties. Executives are offering more cash to jaded employees, and human resources experts have generally acknowledged that the stock option frenzy--like the market frenzy that precipitated it--over-promised and under-delivered for the vast majority of employees. Today, boosters are reassessing the technology revolution in terms that are more realistic, if not downright humble: Rather than a brave new economic force, they say, e-commerce is just another way to peddle goods and services. Although cutting-edge technology companies captured headlines and investor imagination, the Internet Economy of 2005 will likely be full of old-world names that were largely ignored during the bubble--behemoths such as Procter & Gamble, Chevron, Coca-Cola and Boise Cascade. "At the end of the rainbow, is e-commerce a new kind of business? Or is e-commerce merely the way you gain competitive advantage in the brick-and-mortar world?" Ayvazian asked. "I think instead of tipping the apple cart, e-commerce will merely be one distribution channel...just like mail-order catalogs."
