Digital Is for Real
September 07, 2012
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The 2008 financial crisis and its aftermath have made the dot-com crash look almost quaint—the way an early version of The Sims might look to a Call of Duty junkie. The recession that coincided with that stock market slide was mild compared with the one we're now recovering from. Back then, unemployment "peaked" at 6.3 percent, a number that seems enviably low today. So it's easy to forget how disillusioning the tech bubble seemed to many investors at the time. A generation of 401(k) jockeys, many managing their own retirement accounts and portfolios for the first time, felt like kings as they watched Amazon.com break the $100 mark—only to endure the chill when it fell below $8. The tech-heavy Nasdaq index (tech heavy being '90s-speak for sexy) took a similar trajectory, and bearish market pros were quick to offer withering hindsight: Investors had bought tech stocks at prices that could only be justified by enormous earnings growth, they said, but many of the companies had no earnings at all.
What only a savvy few knew at the time was that enthusiasm about the digital world wasn't entirely misplaced: It was just early. Computer hardware and processing power got cheaper and more powerful, digital communications grew faster and more reliable, and eventually, the profits followed. Amazon.com got its groove back, and an entire e-commerce universe took shape. Mobile phones shrank and grew sleeker, even as they became minicomputers that perform tasks once reserved for hangar-size Univacs. In 2000 just 44 percent of Americans were online; today 78 percent are, and vast swaths of the developing world aspire to the same access. And the information technology sector is so well established as to be almost stodgy, accounting for almost 20 percent of the value of the firms in the S&P 500.
But as experts note, and as just about anybody with a job knows, the digital-driven world is anything but settled and secure. Better communication and information-processing technology have created losers as well as winners in all kinds of industries, says John Hagel, co-chairman of consulting firm Deloitte's tech-oriented Center for the Edge: "The biggest change is the intensification of the competition." Customers and business partners demand more of every company—and in private life, Americans face more pressure to make more and faster decisions about their spending and their financial security. The good news, says Anindya Ghose, co-director of the Center for Digital Economy Research at the NYU Stern School of Business, is that savvy citizens are already using the digital era's overwhelming supply of data to their benefit—finding better deals, unearthing smarter investments and holding companies accountable. And mobile Internet platforms and social-media outlets are just adding more tools to the consumer kit. In the never-ending, high-stakes negotiation between companies and consumers, says Ghose, "each of these will be game changers."