Dot Com Bust or Y2K Tsunami?
Gordon C. Everest, Professor Emeritus of MIS and Database Management, Carlson School of Management, University of Minnesota
Over and over I hear talk of the "Dot Com Bubble" in the last half of the 1990s and how it burst in the next half decade. Many explanations seem shallow at best. I think it was more a Y2K tsunami that hit our economy and the technology sector, rather than a dot com bust.
In the 1990s many businesses were driven by the imperative to avoid a potential catastrophe when their computer-based information systems rolled over to 2000. In early computer systems it was common place to save space by recording the year with only two digits. This was even fostered in many commonly used database management systems. As 2000 approached, IT people realized that the year '99 would roll over to '00 when incrementing the year by 1. The computer would then 'think' it was 1900. This could be a problem when dates are manipulated as simple numbers. When you add 1 to 99 and only allow the storage of two digits, the result will be 00.
During the 1990s warnings of dire consequences were pronounced by IT consultants. Several authors capitalized on the 'excitement' and published articles and books on the pending Y2K disaster and how to avoid it. Organizations were encouraged to carefully examine their old legacy systems to clean up the program code to ensure that dates were handled properly. Companies paid anything to hire experienced COBOL programmers, since, at that time, most business applications were written in COBOL. Lack of adequate documentation and unstructured, undisciplined program code were serious impediments to getting the job done. It is nearly impossible to examine program code and figure out what it is actually doing. Many organizations concluded that it was easier and cheaper to rewrite their applications, or better yet, just buy off-the-shelf, third party software to carry out and support the normal business functions. This would often necessitate a corresponding upgrade to existing computer hardware and communications gear.
All organizations go through a regular cycle of new or revised application software development, and periodically upgrading their hardware and system software. Under normal circumstances, organizations would be doing this on their own time schedules. The difference with the Y2K rollover looming was that they were all upgrading their technology at the same time.
What made matters worse, was that IT shops were taking advantage of the situation and put stuff from their IT wish list on to their Y2K necessity list. It was easy to say, "Since we are upgrading some of our systems, why not do them all; why not upgrade our hardware for the years beyond Y2K." Hence, we saw inflated budget proposals. The result was a rising tide of expenditures in new technology. The economic trend in the technology sector in the later 1990s was on a seemingly endless trajectory to the moon. That boom in technology stocks carried the rest of the economy with it. We saw the Dow reach 12000 at the turn of the century.
Well what happened when January 1, 2000 rolled around? Many IT shops put their employees on a 24 hour on-call alert, some even staying on site, in the event that the dire predictions came true. Some airlines grounded their planes for the day. Banks turned off their computers overnight. We sat glued to our television set watching the New Year celebrations each hour moving through the 24 hour time zones... and waiting. But the lights didn't go out.
In short, nothing happened, not even a tiny ripple. We all heaved a great sigh of relief, especially in IT. Did we stave off a catastrophe? Did our heavy investment in IT avoid the dire predictions of some? We will never really know. What we do know is that organizations were saddled with a lot of new investment in technology -- hardware, software, and people. As anyone in IT knows, it takes a good five years for any organization to absorb a major investment in technology.
But worse was to follow. The Dow peaked in March of 2000, falling by some 40% in the next two years. Of course, the technology sector was hit the hardest. It dragged down the whole rest of the economy. Many technology firms failed, some managed to survive, and very few flourished. Investment in IT completely dried up. It took five years for the Dow to recover to the pre-Y2K level.
No one was hiring IS/IT people. I teach in the IS program in the Carlson School of Management at the University of Minnesota. This is one of the most highly rated programs in the world. In the Spring of 2004 I examined the recruiter list for organizations coming to interview students. There was not one recruiter seeking an IS major, undergraduate or MBA. Well, students aren't stupid. With those prospects for a job, why would they want to major in IS. Marketing and finance looked much more appealing, especially given the state of the economy then. (Interesting that eight years into the new decade, we were seeing a faltering economy driven by a collapse in the financial sector, but that is another story). Information systems went from being the largest major in the business school in the 1990s to being one of the 'seven dwarfs.' Many institutions lost their IT/IS students, lost their faculty, and saw their programs collapse -- never to recover.
Guess what? Organizations are back in the IT marketplace. Hardware and software firms that survived are ready for the increased demand. However, the pipeline of skilled people has dried up. For the next several years, many firms will be hurting for lack of skilled technology specialists. It is now time for educational institutions to get back in the game. It may take a while but the need in increasingly urgent. The international competitive pressures are overwhelming to many organizations. Harnessing the potential of IT will be a key component of their future success.