In weighing the negative message of Origins of the Crash against the forward-looking promise of Rational Exuberance, it's worth looking back and considering what the Internet bubble was and wasn't. On the surface, 537 Internet-related bankruptcies in 2001 sounds like a huge number, especially compared with the approximately 110 public companies that PricewaterhouseCoopers forecasts will file for bankruptcy in 2004. But what's easily forgotten is that most of the Internet or dot-com companies were not yet public companies. When we examine the total number of business bankruptcies, we see a much different picture. In 2001, the year the bubble burst, 40,099 businesses failed. From this perspective, the 537 Web-related failures were a drop in the bankruptcy bucket.
The job losses that followed the bursting of the Internet bubble were serious. Beyond the losses caused by the bankruptcies themselves were many more layoffs, including cuts made by surviving Internet companies trying to convince investors that they could be profitable. Through the end of 2001, dot-com companies had announced nearly 100,000 layoffs, more than double the number in 2000. But although those layoffs were devastating for many people, dot-com layoffs numbered less than 10 percent of total layoffs in the U.S. economy in 2001.
Another fact, often ignored, is that the vast majority of Internet companies did not fail. Webmergers.com estimated near the end of 2001 that 7,000 to 10,000 Internet companies -- more than 90 percent of them -- remained in operation. The survivors learned the lessons of becoming successful companies: to segment their markets and understand the needs and wants of their customers; to set prices that make sense in the market; to manage their costs to something less than the price; to create effective fulfillment systems; and to provide excellent customer service. Those are the factors that have always separated winners from losers.
In retrospect, these books show us that much of what looked like the "new" economy of the bubble years was a false promise. Some CEOs measured their success by how much investor capital they took in, instead of by earning real revenue from real customers. Many companies were formed to use the Internet to link the supply chains across entire industries, even though the supply chain processes and data inside the companies in those industries were still managed in unconnected silos. New companies called application service providers were born to eliminate desktop-computing applications, even though relatively few employees or consumers had reliable high-speed Internet connections. The companies that bought into the bunk were the ones that failed. Since many had famous investors or managers, every move they made -- from small layoffs to restatements of earnings -- made front-page news. The drumbeat of bad news made it appear as though the magic of the Internet was unraveling when, in fact, it was the absence of sound business models that brought the startups down.
The rosy picture painted by Mandel in Rational Exuberance may not be rosy enough. I believe we have seen less than 5 percent of what the Internet has in store for our business and personal lives. Soon, a billion people will be using the Internet, empowering themselves to get what they want "on demand." This simple concept, already becoming something of a catchphrase in business circles, in fact, represents a profound change in the way companies do business, and is causing a rebirth of growth in information technology, both for established companies and for startups.
For organizations of all kinds, "on demand" computing will be able to provide access to all the processes and data that are needed by their constituencies -- customers, employees, business partners, analysts, shareholders, and stakeholders -- when they want it, from wherever they are, using whatever kind of device they may be using to connect to the Internet. The most critical requirement for organizations to survive and thrive in this new world is to achieve integration of their strategies, business processes, and technologies, with the Internet as their central nervous systems. By doing this, organizations will be able to present one face to the customer.