Down, but not out

National | Even with technology stocks taking it on the chin, chastened companies are forced to think longer-term

Issue: "Casualty of 'peace'," March 24, 2001

When will the bleeding stop? The Nasdaq hit another low-water mark last week, dipping below 2,000 for the first time in two years. Now dot-com mania is dot-dead and serious high-tech companies are in a world of hurt.

Look at mighty Cisco. It became the biggest company in the world as stock traders shot its value up above General Electric and Microsoft. After that it lost about 70 percent of its value and chief executive John T. Chambers said the company's near-term outlook is grim. The networking megapower announced massive layoffs-5,000 of its full-time employees and up to 3,000 of its temporary and contract workers will be cut loose.

Other bellwether companies are warning like crazy. Intel announced that the economic slowdown had hurt the PC business and the pain is spreading to other parts of the tech world. Big names like Sun Microsystems, 3Com, and JDS Uniphase have also issued warnings in recent weeks. Even noncomputer areas are taking hits; Motorola is unloading 16,000 people.

We see you’ve been enjoying the content on our exclusive member website. Ready to get unlimited access to all of WORLD’s member content?
Get your risk-free, 30-Day FREE Trial Membership right now.
(Don’t worry. It only takes a sec—and you don’t have to give us payment information right now.)

Get your risk-free, 30-Day FREE Trial Membership right now.

And dot-coms? Yahoo chief executive Tim Koogle plans to step down, leading observers to wonder if advertising-based content and services are a dying business. With numerous Internet companies still laying off employees, merging, or closing down, cynicism is now a way of life.

So now what? Bear markets eventually turn bullish and people still want the Next New Thing. The race to expand technology goes on, rain or shine. Intel chief executive Craig Barrett, the elder statesman of high-tech, told developers his company plans to invest heavily in research and development this year. "You never save your way out of a recession," he told the Intel Developer Forum in San Jose.

Even with blood in the streets, the work goes on. Cisco's Mr. Chambers says he's still confident in long-term demand for online services and network capacity and defended long-term growth projections of 30 to 50 percent in revenues. The short term, on the other hand, might not be pretty.

Why are we seeing such a decline? Was the whole world conned during the late 1990s? Part of the problem was obvious greed, but AT&T Labs researcher Andrew Odlyzko also blames faulty thinking. In his paper, "The Myth of Internet Time," he argues that industry leaders misperceived the rate of acceptance for technology. Mr. Odlyzko says that "first-mover advantage" was the main paradigm, meaning that whoever conquered a niche (pet products, business services, etc.) at the start of the Internet revolution could use its dominance to withstand future competitors. It was a fallacy that cost billions of dollars.

According to Mr. Odlyzko, it takes "about a decade for anything novel to diffuse widely." While the rate of high-tech development has increased, human nature still needs time to respond to change. This levels the playing field between "dot-com" and "brick-and-mortar" companies. Netscape had the first great mass-market browser and today exists as an also-ran to Microsoft. Huge as Amazon.com is, he points out, it accounts for less than 10 percent of all book sales. And users have been able to make cheap phone calls online for several years, but the concept still isn't popular.

For five years millions got drunk on high-tech dreams. Now comes the hangover. The exuberance is gone, but innovation carries on.


You must be a WORLD member to post comments.

    Keep Reading


    Troubling ties

    Under the Clinton State Department, influence from big money…