Updated: 5/16/2006; 12:37:56 PM.

Ken Novak's Weblog
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daily link  Tuesday, August 30, 2005


Irreplaceable Exuberance: Henry Blodget reviews tech booms:  "The growth of the Internet has paralleled that of most industries based on revolutionary technology. Canals, railroads, telegraphs, telephones, cars, radios, personal computers - all progressed (or are progressing) through four phases of development: boom, bust, mature growth and decay. .. Sometimes, industry life cycles last a century or more (circuit-switched telephones); sometimes, only a few decades (Polaroid). But the repetition of the pattern - as well as its resemblance to biological evolution - suggests that the boom-and-bust phases should be viewed as far more than repeated examples of human folly. Rather, they should be seen as natural, inevitable bursts of trial-and-error adaptation, the mechanisms through which industries are formed.

A precursor to the Internet boom and bust, for example, was the personal-computer bubble of the early 1980's. The Netscape of that era was Apple Computer, which went public amid the same sort of pandemonium that surrounded Netscape's I.P.O. 15 years later. .. Like Netscape, Apple came in an era of first-day "pops" in stock prices, instant paper millionaires and bull-market optimism. Lotus, Compaq and other companies followed, along with Seequa, Kaypro, VisiCorp, Altos, Gavilan, Victor and others. An ecosystem of supporting companies sprang up - distributors, retailers, trade-show producers, investment banks, law firms and public relations consultants - and the press reveled in rags-to-riches stories. ..

By late 1984, it was over. The stocks had tanked, former moon-shots had gone bankrupt, and thousands of people lost their jobs. Projections of perpetual fantastic annual growth had been hastily revised, and humbled survivors were preparing for a bleaker future. Eventually, however, as with the Internet, the personal-computer industry proved larger and more profitable than even early boosters had predicted. And some of the biggest winners were those that went public after the shakeout - Microsoft in 1986, Dell in 1988. ..

[We should] take solace in knowing that our exuberance helps build industries, however boneheaded it may later seem."

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