The Dot Com Bust and the Social Web.

Back in the hay days of the Internet companies were all looking at exploiting this new means of marketing their ideas. This saw the meteoric rise of many Internet firms who specialized in either creating an online presence for a company or building web enabled apps. I liken it to when you were a child and one of your friends got the latest and greatest widget, you just had to have it for yourself. It was this kind of me-tooism that lead to the technological stock ticker of America (NASDAQ) to reach a dizzying height of 5048 points on March 10, 2000.

Anyone can tell you that the only place to go from the peak of achievement is back down, and boy it did.

After the rush that was the Y2K problem many companies found themselves set for the next couple years. Generally speaking most IT equipment has a life between 3~5 years when speaking in terms of major upgrades. This left many of the companies who had based themselves around selling equipment and services for the web and Y2K compliance without clients for years. Combine that with the dodgy accounting practices and the excessive IT culture that had developed (Aeron chairs anyone?) many IT companies found themselves failing in a heap very quickly, with a lot of them declaring bankruptcy and flooding the market with IT professionals.

In reality this was a good thing for the IT industry. With any new market you’ll get a time when investors will go crazy over it because it’s the latest and greatest, which leads to an asset price inflation bubble. Once people realise that the market is based purely on speculation (or someone reveals it’s just a fancy ponzi scheme) then it will inevitably crash. However, once the crash is complete and the vultures have flown away the new market will seek to establish itself as a true discipline, and I can tell you that the quality of many Internet based companies and applications improved dramatically after the dot com bust, as the business struggled to entice investors back.

Whilst I can’t remember who said this to me first I do have a great quote from one of the engineers who rode out the dot com bubble (probably paraphrased to):

I remember sitting down with some executives and explaining their new accounting system to them. About 10 minutes into the meeting one of the execs said to me “That’s all great, but can you put it on the web?”

Using this as an example, can you think about a current trend that also lends itself to this quote (I’ve already given it away with the title for this blog post).

Right now Social Networking sites and services are growing rapidly in popularity and it seems every other week some new fangled Web 2.0 application comes out that will revolutionise the way we communicate with each other on line. The popularity of these services is now starting to affect business decisions, with many companies wanting to increase their online presence utilising them in some way or another. There are some benefits to this however, as since many companies want their services available through social networking tools they have to increase their ability to interoperate with the world at large, and openness in communication is always a great thing.

It would seem the quote for the Social Web Bubble would be “That’s all great, but can it update my Facebook page?”.

However, thanks to the global financial crisis I don’t believe we’ll see another dot com bust style drop in the technology stocks like we saw back in 2000. All the speculative value that was created in the short time between the dot com bust and now has been effectively killed by the crisis, but with the strange side effect of leaving many of the companies in tact. The GFC may be a blessing in disguise for the companies who have based their wealth on social technologies, which will hopefully lead them to establish themselves properly as the times get better.

When I first thought about writing this blog post I was reminded of the old saying “Those who are ignorant of history are doomed to repeat it”. With only 8 short years between the dot com bust and the GFC it would seem that many tech companies would be wiser then to try and hop on a bandwagon to make a quick buck. The answer lies in the pioneers of the new social technology. Primarily these people are made up of those who, whilst have a rich technological background, where not in the industry at the time of the crash. A great example would be Facebook’s CEO Mark Zuckerberg, who would have been only 16 at the time of the bust. I’d bet my bottom dollar that whilst he created the idea there are many engineers working on his team who were in the dot com bust, but make their money on their skills rather then their ideas.

It would have been interesting to see what would have happened to the Social Web had the GFC not came along.

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