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Why the bubble burst

April 27, 2005 by max

I remember the heyday of the Internet bubble back in the late 90’s. Champagne, million dollar business plans and irrational exuberance everywhere you looked. Those were the days. But why did the bubble burst ? Were we really that ignorant ? Did the emperor have no clothes on ?br /br /I think that many of the ideas, businesses and paradigms conceived during the bubble made good sense. ( Of course, I have to say that, I founded one of the crash-and-burn dot-coms) The problem lay not in the ideas, but in the psychology of consumers. br /br /What happened was that a new enabling technology, The Internet, emerged and brought with it a vast array of business opportunities. Entrepreneurial minds saw the opportunity and jumped at it, convincing investors and media that this would change the world in a way we couldn’t even begin to imagine. And they were right. But they missed the timing. br /br /Entrepreneurs argued that consumers would use a technology if it would save time, money, or make the consumers life easier in some way. Which all sounds perfectly credible. Unfortunately for the entrepreneurs, and the investors backing them, humans don’t deal very well with change. We like things to stay the way they are, we are a reluctant species when it comes to change. br /br /The graph shows how entrepreneurs argued implementation of a new technology would roll out, and how quickly it actually /br /img src=”” /br /br /br /We all made the mistake of assuming that consumers would be rational and use a technology if it made sense. But they didn’t. They waited. And the bubble burst. But history shows us that we are reluctant. It took ten years from the commercial introduction of microwave ovens until it was a commonplace household item. Even though it solved a real problem. This discrepancy in time meant that investors didn’t get the returns they were promised, and pulled the plug leaving the dot-com’s to sink. br /br /But when you look back at the predictions of the dot-com age, many of them are beginning to become realities. Consumers are getting into the technology, and getting on the learning curve. Now is the time for making money on the Internet. Even my mom uses it /br /So if you are an entrepreneur, make sure that your tming is right, and if you are an investor make sure that your pockets are deep enough to keep the company afloat until average Joe and his neighbour discovers your amazing new /br /A first mover advantage often requires deep pockets and lots of patience.

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