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Welcome to Dot-Com Bubble 2.0

The dot-com bubble was a watershed event for software developers. You simply couldn't work in the field without having something miraculous or catastrophic happen to you. Or both at once.

The "dot-com bubble" was a speculative bubble covering roughly 1995–2001 during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. The period was marked by the founding (and in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as dot-coms. A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy early 2000s recession in the developed world.

Like many others, I saw warning signs all over the place in late 2000:

  • Skyrocketing salaries resulted in a rash of neophytes entering the software development field with giant dollar signs in their eyes.
  • Internet companies with irrational, unsustainible business strategies built to cash in and hiring at a frenetic pace.
  • You were never more than two degrees of separation away from a tale of some programmer who became an overnight millionaire.

Despite all the warning signs, it never occurred to me that I was working in a bubble. Until it popped. I don't want to make that mistake again. The three years after the bubble burst were dark, dark times for software developers. Everyone had to scramble to find a place to weather the worst of the storm. And the backlash was severe: rampant offshoring, devaluation of the IT industry as a whole, and diminished salaries and opportunies for everyone.

NASDAQ graph, 1997-2007

Seven years later, we're now clearly in the throes of another dot-com bubble. You might argue that the new bubble has been in effect since mid-2006, but the signs are absolutely unmistakable now. The job market for software developers is every bit as hyper-competitive as it was in 1999. The idea that you can found a company on the internet-- and make money-- is taken seriously now. There's a new one every week.

We've had seven long years to think about what the dot-com bubble meant, and where things went wrong. Here's what I think the original bubble got wrong, and what's different in today's bubble:

  1. Most people have an always-on broadband connection to the internet. Broadband penetration was a mere 5 percent in 2000; as of early 2007 it's now over 50 percent. So many dot-com business models were predicated on the mass market of dialup users, conveniently forgetting how brutally painful it was to use the internet on a modem.
  2. The emergence of viable ad networks. Few dot-com companies had revenue models that made any sense. Now there are dozens of potential advertising networks that you can plop on a web page to guarantee income proportionate to the pageviews. This advertising-supported model pioneered on the web is even trickling over into desktop applications.
  3. Moore's law and open source. An internet startup can now scale to thousands of concurrent users on a few cheap, commodity server boxes, running proven open-source solutions like Linux and MySQL. All of this was possible in 2000, but the "whitebox" software and hardware was unproven, and tended to be far behind the expensive, proprietary solutions. Now it's assumed, mature, a known quantity-- and the cost for that hardware and software is precipitously close to $0.

But the original bubble wasn't all greed and stupidity-- I recommend reading through Paul Graham's What the Bubble Got Right for the upside.

This new bubble does appear to be a bit more sane than the last one, at least initially. The greasy odor of get-rich-quick isn't quite as overpowering as it was in 1999. So far, people seem more interested in building sustainible, useful businesses than rapid market capitalizations.

Bubbles are exciting times. Fortunes are made and lost; careers built and destroyed. It's great while it lasts. So here's my question to you: what will you do differently in this bubble?

Written by Jeff Atwood

Indoor enthusiast. Co-founder of Stack Exchange and Discourse. Disclaimer: I have no idea what I'm talking about. Find me here: http://twitter.com/codinghorror