August 16, 1999

As the market for technology stocks continues its lurching slide, some of
us with memories that predate Internet Time are thinking about infinite loops.

An infinite loop, for those not versed in software lingo, is a type of
computer program that runs the same instructions continuously until it is
either stopped or interrupted.

Infinite loop also seems an appropriate metaphor for the
loaves-and-fishes, endlessly multiplying supply of Internet “businesses,”
and the inevitable indigestion that follows; consolidations and
bankruptcies and shakeouts and layoffs have become the expected and ritual
machinations of the technology industry.

The instruction set for this industry’s infinite loop – a kind of Full
Employment Act for everyone from entrepreneurs and investors to the news
media – goes like this:

Some kid in a dorm room (previous incarnation: some guy in a garage)
invents – or appropriates or whatever – some technology or designs a new
gadget or, nowadays, patents some new software-driven “method of doing
business.”

Newly minted “visionary” asserts he has found the equivalent of the
Holy Grail – if not in terms of the actual technology or concept, at least
in terms of his ability to induce religious ecstasy in investors.

He gets his first round of venture financing. He hires a public
relations firm, which trots him around to the market researchers, the
monthlies (i.e., business and trade magazines) and eventually to the
national business press to peddle the story of this latest Holygrail.com.

The pundits go wild. Venture capitalists start financing
Holygrail-wannabe business plans with abandon. Wall Street bestows upon
them enormous valuations based on “potential.”

Visionary and wannabes alike take their companies to the public market.
The venture capitalists and founders sell off a pile of stock as soon as
possible. The folks they sell it to lose their pants when the stock begins
hemorrhaging, as it almost inevitably does.

The news media start a backlash to Holygrail mania, which it was
complicit in creating.

Then the next-generation visionary comes along and starts the cycle again.

And there you have it. Infinite loopiness. Sound familiar? After the
last couple of weeks of stock shock, it should. What is happening today is
a manifestation of infinite loopiness, plain and simple.

This particular loop – oversell, overkill, regroup, do it again – has
been executing since the first “visionary” had to shuck-and-jive his way
into the hearts and minds of investors who knew a lot more about money than
they knew about technology.

Remember artificial intelligence? Pen computing? Both were the Next Big
Thing – hot investment targets that became big losers – in the 1980’s.

How about CD-ROM? In 1984 (and every year for more than 10 years
after), it was destined to save the educational system and revolutionize
entertainment. Ditto for interactive television in the early 1990’s.

And now it’s E-commerce and the Internet and the World Wide Web.
Obviously the commercial Internet has been exponentially more successful
than artificial intelligence or CD-ROM, but with the exception of a few
remarkable companies, products and services that have actually changed the
world, it has followed the same general course.

And now the stocks are sliding, and panic is spreading throughout the
sector.

And whom do we have to thank? The omnipresent carpetbaggers, whom we
know today as the Dot.coms. The me-too companies, and the venture firms and
investment banks who finance them and take them public. They don’t even
pretend to be the next Netscape or Yahoo or Amazon, most of them. They are
just slipstreaming.

E-tailing. E-trading. E-dating. E-petting. E-drugging. Streaming media.
“Broadband applications,” a.k.a. Dot.coms on steroids. Cable modems.
D.S.L. Interactive TV redux – this time we really mean it!

But we digress.

Sometimes the carpetbaggers stick around long enough to ship a product
(if there even is one). Sometimes they don’t.

But in a few months or a year, when the company hasn’t turned profitable
on a dime, they either sell it off or fold up their tents and go home with
whatever golden parachutes they have managed to finagle for themselves.

Leaving, of course, a pile of investors on the sidewalk with empty
pockets and bad attitudes about technology stocks. And because today’s
investors are still so naive about technology investing, the crash of the
carpetbaggers paints the entire industry with the broad brush of
uncertainty and hucksterism.

This has been true in every infinite loop of the volatile technology
industry. But the broad reach of the Internet, which puts the industry’s
health at the itchy trigger finger of anyone with a computer, a modem and
an on-line trading account, magnifies the effect of every shaky company and
stock offering.

As one prominent venture capitalist, Ann Winblad of Hummer Winblad
Venture Partners, says: “We have to be so careful about every single
investment we make. One bad move and all the rest of them follow us down
the rat hole.”

But not all venture capitalists or investment bankers are so
circumspect, or behave so responsibly. One prominent technology executive
who prefers to remain anonymous compares the venture pack to narcotics
dealers.

“They have every incentive to keep shoveling new companies and new
shares out there as fast as the investors will buy them up, and they have
no incentive to try to talk investors down,” the executive said. “I
think they’re mostly in the mode of raking in the bucks as fast as possible
while the getting is good and assuming that it won’t last forever.”

That is, until the next time.

Denise Caruso

Copyright 1999 The New York Times Company