Tech: Dot-com bubble all over again

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The last time the tech sector faced the kind of financial reckoning it’s undergoing now, the Backstreet Boys dominated MTV (and MTV still played music videos), a lot of people still used AOL dial-up to get on the internet, and Gmail had yet to launch. But interest rates were low-ish, venture capital was plentiful, and startups peddled their novel “dot-com” ideas to investors with dollar signs in their eyes.

But then the bottom dropped out, and the dot-com bubble burst, leading to thousands of layoffs and many companies going out of business altogether. And if this is starting to sound familiar, it’s not just you; many who lived through the dot-com boom and bust of the late 1990s and early 2000s are seeing eerie similarities to the most recent tech-sector downturn.

“Both these eras were characterized by irrational exuberance, I mean, on steroids, with three exclamation points,” Len Sherman, adjunct professor of business management at Columbia University, said. Both eras saw new technology supported by an extraordinary burst of capital; first for the fledgling dot-coms and, most recently—at even higher rates—for tech behemoths between 2017 and 2021.

Out with the old, in with the new: While the ’90s saw the rise of the internet, smartphones and wireless connectivity drove the latest tech sector surge, Sherman said, and in both eras, the new technology led to the belief that the old rules were out, and that one should jump on the next opportunity that emerged. In both eras, however, many investors threw due diligence out the window.