In many ways, the 15 months from January 1999 to March 2000 were an aberration. The Nasdaq more than doubled, market caps of companies in the technology sector (especially the Internet) reached the stratosphere, cash was of little value in a world where only revenue growth and losses mattered. In retrospect (and it is easy to say it now), it was unreal. It was a bubble. And like all bubbles, it has finally burst. Most tech and Internet companies are down 50-90% from their highs. Even Indian software companies have fallen more than 70% from their peaks.
An interesting perspective on the tech bubble is offered by Stephen Frank and E.S. Browning writing in The Wall Street Journal:
The current technology boom and bust, it turns out, is nothing new. It is simply the latest in a long history of investment bubbles that have plagued shareholders since investing began. From the Dutch tulip craze of the 17th century, to the locomotive revolution of the 19th, to the rise, fall and resurrection of personal-computer stocks and biotechnology stocks in the 1980s and 1990s, investors have fallen madly in love with – and madly out of love with – the hot technology of the moment.
There are reasons to hope that a tech recovery may happen faster than has been the case after past bubbles. A fundamental reason for hope is that technology’s life cycle is shortening. That means equipment is getting outdated far faster than in years past.
“With information technology, you can make huge investments now, but basically, three years from now, it’s depreciated to almost nothing,” says Peter Garber, a global strategist at Deutsche Bank and a professor of economics at Brown University. “Because of innovations in hardware and software, information technology just evaporates.”
So tech companies will continue selling gear, perhaps at a faster rate than utilities sold electricity and PC makers sold computers when their stocks were declining. What no one knows is whether the demand will be strong enough to make today’s tech stocks start to rebound sooner than those of yesterday.
The Nasdaq (and Indian tech stocks) may be falling. But that in no way undermines the importance of technology in our lives or businesses. If anything, technology is becoming more pervasive. It is weaving itself around us, making itself both ubiquitous and invisible. The last 20+ years have seen three great revolutions in a single lifetime: the computing revolution driven by PCs, the communications revolutions driven by cheaper and plentiful bandwidth, along with cellphones, and finally, the Internet revolution which has bridged people, companies and countries.
It is a fantastic time to be alive – the coming together of these technologies will ensure that there is more change in the next 5-10 years than has happened in the past 100 years. The amazing this is that we are living through this period of dramatic change, which at times makes it hard for us to see and understand what is happening. In many ways, a good reminder is to look at how our own lives have changed because of technology in the past 10 years or so. To think through the impact going ahead, it is useful to look at some themes brought about by these technologies. No single step may be revolutionary, but taken together their implications are.