"All the VCs were throwing out money, competing to take companies public," Goguen said.

"We got sucked in, like everyone else, to businesses that simply weren't real...We'd pat ourselves on the back and say, 'We got it, isn't that great?' Then six months down the line the company was a mess and we'd regret it."

Few executives with high stakes in the technology industry are willing to admit that greed and ego fueled irrational choices, and in that respect Goguen's candor makes him stand out. But as the peak of the Nasdaq Stock Market approaches its one-year anniversary on March 10, when it closed at 5,048.60, a growing number of academics, analysts and executives are pointing fingers, cracking history books, rethinking careers, and otherwise attempting to assess how the Internet Economy went from boom to bust so quickly.

Some, like Goguen, are examining their own roles in the debacle. Even more are casting an increasingly disdainful eye on almost everyone who contributed to the mania: day traders who gambled on obscure companies; midlevel engineers who cashed in stock options and retired at 29; Wall Street analysts who preached that "eyeballs," "stickiness" and price-to-sales ratios should trump profits; forecasting companies that predicted exponential growth in seemingly everything digital; and business publications that canonized the rich and gave others hope of striking similar fortunes.

Finally, in what might be called a classic case of blaming the victim, many executives are criticizing individual investors for succumbing to greed and emptying their bank accounts to take part in the new Gold Rush, thereby helping to fuel an artificial boom.

"The depravity of it all is what is so stunning," said Lawrence Haverty Jr., senior vice president of State Street Research, who likened the Internet boom to the savings and loan scandal of the late 1980s and early 1990s. "It will be remembered as a true, unmitigated investment tragedy."

Haverty said the stock market losses for America Online, now AOL Time Warner, Yahoo and Amazon.com alone have erased $300 billion in market capitalization since the March 2000 market peak. That's roughly 10 times the market capitalization of General Motors, the world's largest manufacturing company by revenue.

The silver lining
From a purely practical, nonfinancial level, no one is denying the Internet's lasting benefits: E-mail has revolutionized communication; children can research school reports on the Web even if they don't have encyclopedias or live near libraries; and the homebound and elderly can become part of global communities, sharing their world with others of similar persuasion. In addition, consumers have bought items ranging from books to automobiles at deep discounts from e-commerce companies selling goods at a loss to build market share.

But those discounts most often have come at investors' expense. And many skeptics are chalking up the boom not to the underlying technology surrounding the Internet, which they dismiss as no more significant than the dawn of catalog retailing, but rather to global economic conditions and timing.

Ultimately, they say, the late 1990s Internet bubble will go down as a period of temporary insanity--an international giddiness no different from the Dutch tulip craze of the 17th century, when gullible investors paid $300 for a single bulb. And those who profited from the Internet bubble may largely be remembered as deft con artists or lucky fools.

One favorite target of blame is the research companies and publications that spouted reports of virtually infinite growth. Typical forecasts from both Internet consulting companies and blue-chip consultancies showed growth of PCs, DSL access, online shopping, demand for ASPs (application service providers) and other areas shooting up at a 45-degree angle for a year or two, then ratcheting up to a 60- or 70-degree angle for the foreseeable future.

"Hockey stick charts"
In their defense, these researchers point to pressure from companies and others in the industry that pushed for higher numbers--projections so common that researchers gave them a nickname: "hockey stick charts."

"We were all duped by this vision that it was only going up," said Berge Ayvazian, chief executive of The Yankee Group and one of the few researchers willing to openly admit his role in the frenzy. "We were actually criticized for being way too conservative in our estimates. We were under considerable pressure from Internet companies that wanted to use this to get more venture capital funding, to make this hockey stick even steeper."

It was only in the past several months that forecasters seemed to catch wind of the changing economy. Like a technology company that can't meet its financial expectations on Wall Street for its next quarterly report, research group IDC issued a revised fourth-quarter report on PC sales in December 2000.

IDC cut its original fourth-quarter projections about 10 percentage points, from 21.2 percent year-over-year growth to 10.2 percent. But even that proved too bullish. By mid-January, IDC reported only 0.3 percent year-over-year growth in fourth-quarter PC shipments in the United States.

Such disappointing revisions, repeated in other sectors throughout the industry, have been a bitter pill for thousands of workers who took part in the Internet land grab--and they underscore another weak link in the digital economic chain, the over-reliance on stock options.

In addition to research companies, the increasingly long shadow of blame cast by historians includes regular working stiffs, many of whom got greedy during the mid-1990s when the stock market took off on the longest peacetime bull run in U.S. history. Many came to believe they were entitled to vast sums of stock options that would be their ticket to fortune, or at least early retirement.

Between 1992 and 1998, the compensation of the average CEO almost doubled, to $8.4 million, according to a survey of Fortune 200 companies by Pearl Meyer & Partners. And $4.6 million of that average--more than half of an executive's total compensation--was through options grants. In 1999 alone, the unexercised options of Intel CEO Craig Barrett were worth more than $100 million.

From top to bottom
Tech companies extended grants from the executive suite to the mailroom, typically offering thousands of options to midlevel employees and more than 1 million to senior executives. Employees of San Jose, Calif.-based Cisco Systems earned more than $7 billion exercising stock options in fiscal 2000.

The media fueled America's fascination with options. A front-page article in The Wall Street Journal explained how Netscape Communications co-founder James Clark's secretary, D'Anne Schjerning, reaped $1.2 million in options while living in a San Jose trailer park. Other newspapers reported on a decision by Cisco CEO John Chambers to grant 1,300 college summer interns options for 500 shares if they returned after graduation.

The dream that even secretaries and interns could get rich on stock options died last spring, when the stock market began a slide that largely still continues. At the close of trading Tuesday, the Nasdaq was down 56 percent from its March 10 peak.

According to the preliminary results of a survey conducted in November by iQuantic, 50 percent of the option grants at 85 percent of companies are worthless because the stocks are trading below below their strike price--typically the closing share price on the day the options were issued. With the Nasdaq in a free fall, most options granted since last year are deeply underwater.

To shore up flagging morale, Microsoft granted a total of 70 million more options to its 34,000 employees in April with a strike price of $66.63. But with the stock trading around $60, even the new options are underwater.

"Stock options remain a great long-term opportunity," Microsoft CEO Steve Ballmer wrote in a December memo to managers, but "reality has set in--here and industrywide."

That reality includes macroeconomic trends that allowed the bubble to swell unabated in the first place.

Martin Fridson, director of global high-yield strategy at Merrill Lynch, who holds an undergraduate history degree from Harvard University, says technological breakthroughs "help to stir the pot" of a market frenzy, but an abundance of low-cost capital is the real catalyst.

For example, when the French government began accelerating currency printing presses and the national bank dropped interest rates as low as 2 percent in the late 1600s and early 1700s, England and France entered a period of economic exuberance now known as the "South Sea Bubble." The idea, which seemed reasonable at the time, was that new, more efficient trade routes between the South Pacific and South America would create a commercial revolution for seafaring nations.

Eager to capitalize on the boom, financiers reaped huge sums from ventures that seem absurd in hindsight: selling hair, developing a funeral home chain and importing walnut trees from Virginia. As interest rates dipped and more money was printed, developers even sold investors plans for a mysterious "perpetual-motion wheel"--an impossible, laughable device that uses less energy than it consumes in perpetuity.

Investors became so crazed--and lost so much money when the bubble burst--that the British Lords Justices Council in 1720 abolished all companies trading in hair, funeral homes, walnut trees or motion wheels.

Back to the future
Flash forward roughly three centuries. Historically low interest rates in the United States throughout the late 1990s, combined with an Asian currency crisis and an increasingly dreary economic situation in Europe, inspired investors to throw cash at American ventures such as online pet-food retailers and dry-cleaning services.

At the same time, because of banks' willingness to take risks they once would never have considered and an abundance of low-interest loans in the mid 1990s, consumers and businesses spent lavishly--even though the money was not their own.

In the second half of the 1990s, tens of thousands of Americans bought houses for the first time, as well as cars and computers. By December 2000, consumer debt was $7.5 trillion, more than twice what it was in 1990. Corporate debt was $10.6 trillion. In 2000, the average American family owed more money than it made after taxes.

As the perceived cost of capital dropped, modern investors needed a place to park their cash, and they became enamored with the idea that the Internet would revolutionize commerce.

When those companies' IPOs resulted in stock prices that increased 100 percent, 400 percent or even 600 percent on the first day of trading, the venture capitalists cashed in--and the cost of capital became negative: Investors could make more money by selling shares after companies went public than they put into funding the companies to begin with.

In March 2000, the British tabloids learned that even Queen Elizabeth was poking around the bubble, investing 100,000 British pounds in a pre-IPO company called Getmapping.com. (In a March 20 editorial, The London Daily Mail wrote an entire article about the similarity of the queen's newest investment to the South Sea Bubble: "The parallels are uncanny. An investment frenzy fuelled largely by hype.")

As investors piled into Getmapping and thousands of other start-ups, venture capitalists threw money at entrepreneurs, business school graduates, high-level executives, rookie programmers--virtually anyone with a half-baked business plan scribbled on the proverbial cocktail napkin. It was a perfect environment for an economic bubble.

"If the cost of capital gets low, you should expect a boom whether or not there's technology to be found," Fridson said, noting that the economy ebbs and flows, but such irrational gushes of capital usually come no more than once per generation. "That explains the infinite supply of IPOs."

"Things got sloppy"
The pace could not sustain itself. Although the 451 IPOs in 2000 posted average first-day gains of about 55 percent, the vast majority tumbled by year's end, to an average loss of 15 percent from the offering price, according to Thomson Financial Securities Data.

"Last year, things got sloppy," admitted Bob Marshall, general partner for Selby Ventures, a group specializing in early financing of technology companies. "Everything was getting funding."

It's hard to overstate how dramatically the pendulum has swung since the March 2000 stock market peak.

Instead of attending lavish launch parties to celebrate companies going public, many workers in San Francisco and New York are instead bringing their resumes to pink slip parties. Executives are offering more cash to jaded employees, and human resources experts have generally acknowledged that the stock option frenzy--like the market frenzy that precipitated it--over-promised and under-delivered for the vast majority of employees.

Today, boosters are reassessing the technology revolution in terms that are more realistic, if not downright humble: Rather than a brave new economic force, they say, e-commerce is just another way to peddle goods and services.

Although cutting-edge technology companies captured headlines and investor imagination, the Internet Economy of 2005 will likely be full of old-world names that were largely ignored during the bubble--behemoths such as Procter & Gamble, Chevron, Coca-Cola and Boise Cascade.

"At the end of the rainbow, is e-commerce a new kind of business? Or is e-commerce merely the way you gain competitive advantage in the brick-and-mortar world?" Ayvazian asked. "I think instead of tipping the apple cart, e-commerce will merely be one distribution channel...just like mail-order catalogs."