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 Monday, 11 March, 2002, 12:41 GMT
The virtual business got real

In the first of a week-long series of reports, BBC News Online meets e-business survivors still struggling through the wreckage left by the crash.
Future archaeologists who burrow down through the pavements on which turn-of-the-millennium man used to walk, and the tarmac over which he used to drive, may struggle to explain what lies beneath.

For what confronts them will be thin tubes of sand stretching city to city for hundreds of miles.

The lines will prove to be the remains of glass-based cables laid to transport the lifeblood of a telecoms-driven revolution, yet fated to convey but skeletal testament to dreams dashed, fortunes lost and promises broken.

Just as there was still a tulip industry after tulip mania, there is still an internet industry after internet mania

Greg Hadfield, Schoolsnet

All but 5% of the cables laid in the late-1990s, when dot.coms threatened to channel huge swathes of trade through fibre optic networks, remain unused, Legal & General estimates.

"Eventually the glass will oxidise and turn back to silicon dioxide, or sand as we call it," L&G's outgoing investment chief David Rough told a City gathering in October.

As he spoke, hopes that the internet would revolutionise the face of business, lead to a gender-neutral, teleworking society, had already turned to dust.

Hopes which once saw Yahoo worth $93bn, more than, say, Ireland's total economic output.

Ideas which saw the internet not just as the basis for a new market sector, but a whole new economy.


The day the dream died is dated typically as 13 March 2000, when the benchmark reading on the Nasdaq, the tech-embracing stock market which had become a barometer of the boom, turned earthwards.

T-shirted, camouflage-trousered workers who that day headed for the front line of the revolution little knew that, on the stock market, America's greatest bull market was about to end.

But within a month the Nasdaq, which had risen 30-fold in 18 years, had plummeted by one third.

'Record destruction'

Not that all observers agree on the March doomsdate.

Some trace the bursting of the bubble to December 1999, and the peak for shares in telecoms firms.

After all, at an estimated $750bn, far more was invested in telecoms firms than the sector their cable and wire expansions were meant to support, Legal & General says.

Others believe the era really ended when Asia Global Crossing became in September 2000 the last flotation in a series dating back to America Online in 1992.

Few would argue, however, with Mr Rough's analysis that the implosion heralded the "worst period of capital destruction in modern financial market history".

Bang went the virtual empires founded on ignorance, the businesses built on one-paragraph business plans, the supplies of bubbly without profits to celebrate.

Bang went the culture which prized promises more than results, enthusiasm more than experience, and youth highest of all.

And the fallout?

"We all lost out somehow," said David Schwartz, a stock market historian who was among prophets of the crash

"Entrepreneurs lost their businesses. I can't believe there was a single person in the financial services industry who did not get burnt somehow.

"And everyday people, through their savings, they lost out too."

Signs of hope

It is ironic, then, that while the prices of shares in tech firms have plunged - and may have further to fall, Mr Schwarz believes - major internet firms claim that prospects have never been better.

Despite high-profile collapses such as and Webvan, only some 10% of US dot.coms have failed, Webmergers claims.

And the volume of online sales in Europe alone will rise from 13.4 euros last year to 64.4 euros by 2006, Jupiter Media Matrix estimates.

Old versus new

Certainly much of this trade will be channelled through the corporate stalwarts once dismissed as too clumsy to gain entrance to the internet market.

UK supermarket Tesco, for instance, founded in 1924, now ranks as the world's largest online grocery retailer.

I lost hundreds of dollars in back pay and expenses. It was crippling

Redundant worker

But considerable sums are also being claimed by dot.coms which have spent recent months fighting claims that they are too steeped in new economy hogwash to enter the world of real profits.

Spain's Terra Lycos and the UK's are among dot.coms promising to pierce the breakeven barrier this year, with Amazon in January announcing its first quarter in profit.

"Just as there was still a tulip industry after tulip mania, there is still an internet industry after internet mania," said Greg Hadfield, chairman of UK education site Schoolsnet.

Even the miserable proportion of fibre optic cables in use reflects not so much stagnating volumes of telecoms traffic as advances in technology, Legal & General admits.

"New products allow you to transmit message not just through one light beam, but colours, shades of colours and shades of shades," a spokesman says.

"You can use a single fibre to carry a much, much greater volume of signals. So you do not need to use all those other fibres you laid."

Lost jobs

At an economic level too the internet seems capable of picking up at least part of the bill for the party.

One of the pillars of new economics was set in the internet's ability to boost productivity, an assessment which has proved to have held some truth.

Since 1995, US productivity has improved sufficient to see real wages double every 35, rather than 50, years, The Economist calculates.

Not that this may be much comfort to the 144,000 US workers laid off in the last two years.

"I lost hundreds of dollars in back pay and expenses," said one, a former journalist, who saw the property website he worked for collapse.

"It was crippling. But I suppose that is the price you pay for believing in the pot of gold at the end of the rainbow."

Or even in

On Tuesday BBC News Online meets the prophets of doom who foresee more share falls.

See also:

14 Feb 02 | Science/Nature
12 Feb 02 | Science/Nature
07 Feb 02 | Americas
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