A New Tech Boom Gathers Steam

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A New Tech Boom Gathers Steam

As we’ve just explained, when the housing market cools, the stock market will heat up. And what will be the hottest sector of the market? Information technology.

Obviously, we’ve seen this before. Dot-com mania created fortunes from little more than silicon, HTML code, and feverish imaginations. Aside from a few pioneering companies like Google, Yahoo, Amazon, and eBay, most of those businesses never turned a reasonable profit, and many quickly crashed and burned.

But look around the Internet now, and you’ll see that the reality of the Net finally lives up to the hype we heard in the ‘90s. The number of Internet users throughout the world reached 1 billion last year. The technology has evolved from a novelty to an indispensable part of everyday life. At this moment, millions of people are using the Web to download music legally, upload their photos from their digital cameras, pay their bills online, search for products, and buy everything from notebook computers at Dell.com to diamond necklaces at BlueNile.com.

This isn’t another bubble stretched beyond the boundaries of reason. This is the inevitable next stage in the progression of any revolutionary technology. Whether it is the airplane or the cell phone, whether it is the railroad or the music download, every important, disruptive technology goes through a series of phases from boom to bust to build-out.

During the pioneering boom phase, entrepreneurs, investors, and users get their first glimpse of the technology’s potential. However, the euphoria over what it could be overwhelms what the technology is at that point; investors throw money at anyone with a business plan, and competitors swarm into the market.

Ultimately, the technology is too primitive at this stage to live up to the wildly inflated expectations of users and investors alike, and the market for the pioneering technology crashes. During the bust, many of the competitors go out of business or consolidate, and only a few strong businesses survive as the pioneering phase comes to an end.

During the next stage, the build-out, the surviving pioneers are joined by second movers — established companies that focus on using solid business plans to commercialize the technology. It’s also at this point that the infrastructure needed for the technology, as well as the supplementary products and services that are needed to support the technology, become established. As a result, the technology deeply penetrates the market and strengthens the economy.

It was during the build-out phase of the automobile industry that its technology took off...

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