Tech's second boom: What's different this time?

By Bryan Martin , written on June 19, 2013

From The News Desk

Before the turn of the century, the world went wild with predictions about the dot-com era and the infinite potential expected to emerge from the birth of the World Wide Web. While many of our enthusiastic dreams came true -- like how the Internet would someday represent an entire world of commerce -- the pace that dot-com companies and investors moved was too quick, eventually leading to the dot-com crash of 2001. The World Wide Web, in many ways, has only recently become what investors predicted long ago as the business models behind it have evolved and matured.

Now we’re experiencing a second surge, a rebirth of high-tech success driven largely by the services delivered over the Internet and the proliferation of mobile, Internet-enabled devices. The Dow Jones Industrial Average and the S&P 500 are at or near historic highs. The NASDAQ has delivered healthy growth, and companies like Apple, eBay, and Facebook are driving new wealth. Quick growth and unprecedented stock prices tell us we’re on the verge of the most monumental tech boom to date, one that is far greater than the birth of the World Wide Web.

This begs the question: what lessons can we learn from the dot-com bubble?

Dot-com boom and crash

When reminiscing about the dot-com era, it’s clear that companies and investors alike were putting their hope -- and their money -- into dreams. The Internet was a new concept. Buzz-phrases like “tailored Web experience” and “information technology” flew around like so much confetti. Investors were happy to jump on the bandwagon of "innovation" and threw their money at it without always double checking whether the company was capable of turning a profit. In fact, in 1999 alone there were 457 IPOs, a large majority related to Internet and new technologies, and over 25 percent doubled in stock price the first day of trading.

This euphoria, fueled in part by the media, ultimately led to the infamous dot-com crash of 2001. According to Investopedia, the number of IPOs declined to 76, and absolutely none of them doubled on the first day of trading. Interestingly, while a large number of companies filed for bankruptcy, including,, Webvan, and WorldCom, their concepts still live on today. Niche eCommerce, VoIP, the Web experience, and data were just a few of the ideas that were introduced in this era.

How consumerization of Information Technology (IT) affects the second boom

The past decade has produced some of the greatest developments in consumer technology we’ll see in our lifetime, including social networking, the commonality of online shopping and the accessibility from personal laptops, mobile phones and other electronic access devices. Since 2001, major players have emerged in all facets of tech, from Amazon to Google to Apple to Facebook. Each disruptive technology has paved the way for niche clones to follow suit, heralding a world where tech drives the daily lives of average citizens.

But only recently have these trends made their way into the workplace, affecting how, for example, “back office technology” is implemented, administered and delivered. The purchasing power, or at least the decisions, of many organizations are increasingly influenced by employee demands. Instead of businesses choosing software from a particular company, or laptops from a certain vendor, they are making choices based on employee preferences, which in turn has increased the demand for secure and reliable technology.

The shift towards consumers sharing purchasing power within organizations has also transformed the way we expect business technology to work. We come to work thinking the same “return policy” that applies to a brick and mortar store should be applied to any new platform or software we try. This return policy mindset makes switching to the cloud an no brainer for businesses, as they can transition to a pay-per-user model and can move between different software as a service providers.

Our new, consumerized mindset has driven a number of tech startups to emerge, and has prompted some acquisitions by major players who have need of solutions for security and cloud computing. "Consumerization of IT" is more than just the newest buzz-phrase, it’s motivating an entire industry to invent new and better technologies that make the workplace more efficient.

Avoiding another crash

No doubt, there are similarities between the dot-com bubble and today’s euphoric high-tech hype. In both, innovators, investors and Wall Street insiders became  overly excited and expected change to happen too quickly. In a similar fashion, a multitude of acquisitions at enormous valuations are occurring on a weekly basis, and we’re watching investors pour money into what they believe will be the next biggest innovation. When large businesses see value in a smaller company, they are quick to snatch it up.

But are we moving too aggressively? Are we setting ourselves up for a repeat crash?

This year, Yahoo paid an astonishing $30 million dollars for Summly, a data summarization technology predicted to improve Yahoo’s search features. Then it went on to acquire Tumblr for $1.1 billion. In 2011, Skype was bought out by Microsoft for $8.5 billion and in 2012, Facebook spent $1 billion in cash and stock to buy the photo-sharing network Instagram. These acquisitions might seem outlandish, and some might be skeptical about an impending crash, but I’d argue we are doing two things better than a decade ago:

First, in the late 90s, investors threw money at whatever business had the best idea, and generally speaking, spent little time determining if their operating model was set up for long-term success. This was a major factor in the crash that came a few years later. But investors have learned their lesson, realizing that a working business model and cash flow are absolute necessities. Even the most innovative high-tech business plans must include a plan to scale, and reasons for predicting future success and monetization. Look no further than the cash flow generated by WebEx (which was purchased by Cisco for $3.2 billion in 2007). WebEx’s profits of $50 million dollars in 2006 are absolutely dwarfed by the cash flows generated by this online business since the purchase.

Second, the Internet has become a real business tool. When we think back to the dot-com boom, innovation was based on concepts that had yet to be proven. Ideas like online shopping and targeted marketing were premature. At the time, nobody could have predicted the rapid pace at which businesses around the globe would adopt the Internet as part of daily business. The Internet serves as a platform on which many new technologies are delivering cost-savings, efficiencies, and scale to businesses all over the world.

There is nothing like a decade of testing, development and a subsequent shakeout cycle to get things right.

[Image via New Boston Historical Society]