Valley will rise again, not like in late '90s

It's beginning to dawn on folks in Silicon Valley that the speculative boom of the late 1990s is really over. Hardly a day goes by without another spate of bad news from large and small technology companies alike, and even the inflationary housing market always a trailing indicator shows signs of returning to rationality.

Just as the optimism was loony in its overkill at the height of the boom, however, some of the fear and loathing we're seeing today may also be a bit excessive. The Valley's economy was never as strong as it seemed then, and it's probably not as weak as it seems now. Yet there's reason to believe that the world's high-tech epicenter is at something of a turning point.

Many longtime residents say they've never seen a pullback in demand to match the current one. Week after week, earnings and revenue estimates get cut by some of the industry's most important players, and the companies supplying the hardware and software and the tools to make it all are bearing much of the brunt.

The venture capital community, which grew fat and happy when it could turn almost any investment into a winner, is retrenching in a dramatic way. Where absurd ideas once easily drew competing terms sheets, now even the best ideas take some selling. That's life and capitalism, where excess tends to go in both directions.

I'm writing this from Singapore, where a recession has hit, people are worried and the U.S. economy has inordinate impact. I just interviewed the head of the island nation's biomedical sciences initiative, an ambitious program he sees as a foundation to the knowledge-based economy of tomorrow. Like everyone else I encounter these days, he wondered when or if Silicon Valley would be healthy again. If we're lucky, I reply, it will never be as healthy as it was during the late '90s. That bubble was more than an economic distortion; it inflated expectations, too.

So even if the Valley isn't going to return to those unsustainable heights, it retains all of the attributes that helped it rise in the first place. It still has lots of talented people, great universities, capital and an infrastructure that lets entrepreneurs put together companies quickly.

Moreover, people are getting back to rational behavior. The greediest are leaving. Good riddance, I say, and thanks for helping ease (if slightly) some of the traffic jams.

I recently visited a tiny start-up in Mountain View, just a couple of blocks from the first offices of Netscape, the company that did the first famously excessive IPO. This start-up was in borrowed offices. The furniture and computers were scavenged from failed dot-coms. The people were smart. They may not turn their ideas into a business, but they're trying to build something that will survive longer than a year or two the too-common time frame of bubble companies.

There's good news and bad news in all of this for IT buyers. Unless it's dealing with a monopoly, IT can expect more realistic contract terms.

The sellers are also in an environment today where they must have a rational business plan, as in charging a fair price for products and services rendered. Rationality prevails? What a concept.

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