Back in March 2000, at the peak of the dot-com bubble, I graduated from UCLA with a Master's degree in Computer Science. I started to work as a Software Engineer for a hosting company called SoftAware Inc. in Marina del Rey, California. Unlike my classmates who flocked to Silicon Valley, I stayed in Southern California so I could complete my Ph.D. degree at UCLA while working fulltime.
The year 2000 was an interesting time. After a decade of massive growth in the use and adoption of the Internet, a stock market bubble was formed because of the excessive speculation in Internet-related companies in the late 1990s.
One year after I joined, the hosting company was acquired in 2001 by a San Francisco based company called Digital Island. Digital Island operated a global private network that provided hosting, content delivery, and networking to business customers looking to bypass Internet congestion (Its shares traded as high as $148 in December 1999 before crumbling along with other Internet-related stocks).
After the acquisition, I continued to work for Digital Island as a senior system and software engineer. My private office had stunning views of the Pacific Ocean. In my lab, I had lots of networking equipment to play with: routers, switches, load balancers, firewalls, etc.. For a software developer with a major in computer networking in the year 2000, this was a very ideal first job.
In early 2002, Cable & Wireless acquired Digital Island in an all-cash transaction for $340 million at $3.40/share(the British company trades on the London stock exchange). In the same year, Cable & Wireless acquired Exodus Communications for $850 million.
With these acquisitions, Cable & Wireless became the world leader in hosting and internet services. Even though it is a traditional telecommunications company, Cable & Wireless made the brave and risky move into business data and Internet services in the US market at the end of the bubble. In order to drive growth, the company sacrificed profitability for market share, accumulating large debt in billions.
The stock market was not doing great during that time. The NASDAQ reached a peak of 5000 in March 2000, the month that I started to work as an engineer. By the end of 2002, the NASDAQ index is at 1200, a drop of about 80% in market valuation (as a reference, the NASDAQ index is at ~9000 at the time of the writing).
Due to the economic downturn, Cable & Wireless started to lay off workers in the summer of 2002. I was affected. As I mentioned earlier, I was working on my Ph.D. research while working fulltime. I decided to go back to the beautiful UCLA campus in Westwood to finish my dissertation. I got my Ph.D. degree in Geophysics and Space Physics in the summer of 2003, a year after I left Cable & Wireless. Due to the huge debt and weak data service demand, Cable & Wireless filed for Chapter 11 bankruptcy in late 2003.
What did I learn from this experience? If we can learn from our past experience, we can prevent the same mistake in the future. However, keep in mind that, because human nature (greed and fear) never changes, so history may repeat itself,
The 1990s was that part of the American dream that wanted to get rich quick. During the dot-com bubble, the famous quote is “If you build it, he will come.”
Cable & Wireless entered the Internet services market at the wrong time. The company was convinced that, with more and more businesses utilizing the Internet, the future economy would require broadband access. This was probably true, but they entered the US market at the wrong moment. Other Telecom equipment providers also went deeply into debt to improve their networks with high-speed equipment and fiber optic cables. When the bubble burst in 2001, the demand for data service disappeared.
Twenty years after the crash, the NASDAQ index is at an all-time high again. The business has learned from the dot-com crash. The marketer has learned that if you build it, they probably won’t come.
Startups nowadays are trying very hard to avoid the same mistake. They follow the lean startup principles, build a product prototype called MVP (minimum viable product) before they double down on an idea or product. The sales & marketing team uses automated tools and social platforms to bring product awareness to their potential customers. With this prudent approach, I do not expect another stock market crash very soon.
Interestingly, the infrastructure established by the Telecom industry during the dot-com bubble period did provide a strong foundation for the next Internet expansion 10 years later. Stay tuned for my next journey in a successful startup post the dot-com bubble.
