An interesting piece of correspondence today from a person who observed how easy money dramatically transformed the technology industry, from rationality into mania.
I am deeply involved in the technology industry-- specifically computer software and the Internet-- and I lived through the tech bubble. What impressed me about the tech bubble was not only the mania and the crash, which you describe quite well, but also how much damage the tech bubble itself did to my industry.
That damage has been lasting. We don’t see it because we’re still coasting on the value that was created back when virtue, hard work, and real innovative thinking ruled this field.
I grew up with computers, getting my first and learning to program it around age four or five. I remember back before the bubble. Innovators would work for years on genuine significant innovations, often either privately in their basements or in academia. When those innovations started to really blossom, they would cautiously and prudently step out into the business world and attempt to commercialize them. There was venture capital available if something actually took off, but it was hard to get (read: you had to actually have a business or at least something with provable solid demand and a valid business model).
It was this world which gave us the PC and the Internet. The PC came out of personal and academic experimentation that was then cautiously commercialized starting with communities of enthusiastic hobbyists. The Internet emerged from two things really: academic research (DARPAnet, etc.) and personal hobbyists building their own private communications networks between private bulletin board systems (BBSes). When the academic research networks met the BBS hobbyists, the Internet Service Provider was born. The rest is history. The web browser was invented by an academic institute to categorize scientific papers and make them available to other scientists. It was commercialized by someone who had direct contact with that program and saw its commercial potential.
It all just came together naturally, organically. Yes there was government backing at the academic level and to build early experimental networks, but it was a far different animal from inflationary bubble cash. Ph.D research is real work... the total opposite of flipping and coasting on a bubble.
It was glorious and fun. I remember those days. I was younger, but I lived through it. I really have to underscore how exciting and fun it was. Anyone could get into it, and there was a sense that if you worked hard and smart you could make your mark on the field regardless of who you were. There was a real community around the whole thing, often referred to as “hackerdom.” (Hacker in the classical positive sense, not the criminal sense.) People helped each other. They met, exchanged ideas, and had a great time.
Then the bubble came.
Billions and billions of inflationary money is always being created, and its always looking for somewhere to flow. When the PC revolution converged with the ‘net revolution and “it all came together,” M1 once again found a great way to become M2.
The nature of the VC business changed dramatically almost overnight. Before, VCs invested in solid businesses or at least provably solid ideas (in the case of early-stage high-risk VC). Now, VCs just wanted to get in on “dot com.” It didn’t matter if it was solid or not. If it was “dot com” it was gold. So much money started to flow into the sector you could make money just by getting a slice of the pie and then flipping it... just like housing in 2004-2005.
Also just like housing, this attracted an avalanche of new people to the sector. Your mom wanted to become a technology entrepreneur. *Everyone* wanted to start a startup or work for one. All you needed was a very fluffy hand-wavey business plan and *some* kernel of potential value and you could grab some of that flipper cash. As the bubble got bigger, standards dropped... just like housing. Eventually you didn’t even need the kernel of value.
Like the housing bubble, it was exciting while it was happening. Like a hard drug high, you don’t realize the damage it’s doing until it wears off. It was only after, in retrospect, that it became clear just how the bubble had damaged the field.
The first casualty was the benevolent fun community. “Hackerdom” is all but dead. The flood did two things: 1) it brought in a huge sudden flood of drab careerists and manic opportunists who didn’t actually care about the field and 2) it made every little kernel of an idea something to be guarded and squabbled over. The sharing stopped. The community ended. After all, if you reveal when you’re doing then someone else will steal it and beat you to the punch. It turned into a race to guard and protect and then hype and cash out.
The second casualty was quality and genuine innovation. In a flipping environment, quality doesn’t matter. Quality and innovation are deeply linked in technology, so by extension innovation no longer mattered. By innovation, I mean *real* innovation... the kind that actually takes brains and hard work. So everyone set aside the hard deep innovation they were working on to chase the mundane but hype-laden trend of the week.
The third casualty was long-term investment and commitment to things once they entered the commercialization stage. Instead of “how will you become profitable” and “how will you sustain your business” the question became “what is your exit strategy?” This means “how will you flip it?”
The fallout of the bubble persists today. The bubble mentality still dominates even though it no longer really works... the easy money moved on to drown housing and I’m sure will move on to something else soon.
I described the tech field pre-bubble, so now let me describe the desolation.
I would describe the tech field-- particularly the “startup” world of today-- as a bunch of hucksters and manic sociopaths leading the jaded.
Your typical tech entrepreneur has disdain for genuine innovation. It’s a waste of time, and the people who do it are silly geeks who don’t “get it.” Sitting in front of a monitor for years and trying to make really hard stuff happen is, like, work! Most of the time nobody even pays you for it, or if you’re an academic instead of a basement hacker you might get a graduate stipend or a professors’ salary. Suckers work. People who really “get it” leverage and hype and flip, doing the absolute minimum amount of actual work required. Of course, like I said, the people who are best at doing that are manic charismatic sociopaths. Hype, cut corners, and flip, and be sure to position yourself to screw as many people as possible while not getting screwed yourself by the time the cash out event comes.
It is, for the most part, not fun anymore. The environment is either hostile or jaded.
I have worked for years on something hard, and I lost two years of work when I started doing the fun thing and trying to share and develop a community. I almost instantly came to the notice of one of these “flippers” and got lied and hyped into joining what turned out to be an absurd business venture. I had to walk away from quite a bit of work in order to guard myself against future IP issues. I am rebuilding, but it takes a long time and was quite a setback.
You can’t share what you’re doing openly until you “vet” someone by really getting to know them for a while. The whole industry is crawling with opportunists of various types, and most who aren’t opportunists have absorbed the prevailing mentality that hard work and innovation are silly and will look at you with disdain and pity for doing it.
I am sitting here hoping for a second great depression. Maybe if everything completely crashes and resets then the field will finally heal and we’ll have the old world of exciting innovation and responsible honest business back. I would rather eat garbage out of a dumpster for the next two years if after that I could have sanity return.
But a violent purge is not going to happen... though I do see some “green shoots.” Not the kind the pundits talk about of course... the green shoots I’m talking about are manic hype-laden hot air businesses going bankrupt. Despite the propping up of the economy, it is happening. I give a silent cheer whenever one gives up the ghost. Die! Die worthless hype!
The vacuous flippers and con men continue to mill around, but subsequent bubbles are luring them away. I cheer too whenever I see one leave tech for “greener pastures.” Look! Over there! There’s a bubble in pork bellies! Go! Good riddance.
So I suppose that if the bubble machine stays away from our field we might finally return to sanity. “Hackers” will start innovating again, and real honest sustainable businesses run by businessmen without diagnosable mental disorders will begin once again to dominate the field.
We can only hope.
