The New Normal

During the late 1990s, the business world was captivated by the idea that "the Internet changes everything." Does the New Normal change it back?

The trouble with that line is that people used it as license to defer profitability forever to build a really large beachhead against the total transformation of the economy. The rules were: Create your own metrics -- eyeballs, page views, it didn't matter what they were, as long as they grew at exponential rates -- and capital would be freely available to your idea. Everything was defined in terms of market capitalization. People weren't building businesses so much as participating in a kind of arbitrage. Investing was about the thrill of victory. Everyone from venture capitalists to cabdrivers became a compulsive trader. And while the Internet touched everything, it only transformed three industries: travel, brokerage, and retail (of books, video, and music).

When the music stopped, there were only three chairs for tens of thousands of people. The rules changed again, but nobody told you what the new rules were. Suddenly, if you weren't already profitable, you were never going to get a chance to become profitable. As unreal as it was on the way up, the consequences of that were inescapably real.

You know what? That's the textbook definition of a "mania." And that's what the late '90s were. This is how it works: When great new technologies come along, everybody wants a piece of the action. Speculation tends to go hand in hand with entrepreneurship. Capital is infused indiscriminately into the industry. This funds a huge burst of creativity -- which is followed by a Darwinian process that rationalizes the industry.

The bad news is that the speculators lose a lot of money at the end. The good news is that as much as we lose in the short run, there's more to win in the long run. Every great industry in America has been built on the back of a mania, from railroads and autos to PCs. We're not talking about tulips; we're talking about industries that have become central to our economy.

So let's be clear: The '90s were not normal. The thing I am most certain of in this world is that the technology universe will not see that '90s type of growth explosion again -- not in our lifetime. This is the New Normal, and it's about the rest of your life. So the first piece of advice is, Let's move on.

Before we get on with the rest of our lives, isn't there a monster hangover to deal with? Do things still get worse before they get better?

Without a doubt, there's a lot of adjustment left to be done. There are three-legged deer running all over the place, and we have to thin the herd. Phase one of the New Normal is about every company looking at its cost structure. The quick hits are to head count and the IT budget. For the first time in history, IT people found it to be good for their careers to spend less than their budget. As a result, we're in the midst of a kind of truce where the whole economy has decided that we're not going to invest in tech while we figure out what went wrong. But it would be dangerous to forget that technology still remains the principal weapon in terms of creating a competitive edge.

There's another key issue here. To focus exclusively on the negative reverberations is to miss the point. We may not be going back to the boom days, but we're not going back to the normal of the '80s either. Technology is completely interwoven into the social fabric. That's the "new" part of the New Normal. Twenty years ago, technology was a noncore activity for enterprises, and it barely touched individuals. Today, it's nearly 10% of the GDP, and doing without it is inconceivable to most people.