What Silicon Valley’s boom-and-bust history tells us about its latest slowdown

The bad news just keeps coming. It started with hiring freezes, then moved to layoffs. A lot of them.

Twitter, Lyft, Stripe, Salesforce and, of course, Meta are cutting thousands of jobs. This turn of events felt almost inconceivable a year ago, after a two-decade run during which the industry seemed unstoppable.

But tech is notorious for booms and busts — and not just the dot-com bubble of the late 1990s and early 2000s.

Marketplace’s Meghan McCarty Carino spoke with Margaret O’Mara, a history professor at the University of Washington who studies the links between technology and politics, about key similarities and differences between this downturn in the tech sector and those of the past.

The following is an edited transcript of their conversation.

Margaret O’Mara: The most familiar one is the dot-com bust from the turn of the millennium. [There were also downturns] in the late ’80s, early ’90s. And if you dial back even earlier to the late ’60s, early ’70s, [there were] common characteristics. There was a big run-up of stocks in the ’60s. They were called Space Age stocks because they were all about electronics that had to do with the space program and defense. And there’s also, like, larger macroeconomic conditions — what the [Federal Reserve] is doing, what incentives investors have to invest. But it also, usually before a bust, there is some, as Alan Greenspan called it, “irrational exuberance.” Too much growth too fast. I think there are two things that are different this time that are really interesting. One is that the last 2½ years have been an extraordinary time of growth for tech, in large part because of the COVID pandemic. I believe Facebook’s headcount doubled since the early 2020s. So I think the other thing that’s really different about now, as opposed to even 2001, is Silicon Valley. The tech industry is so much bigger! Like everything’s bigger, the companies are bigger, the products are in every nook and cranny of the economy and people’s lives, so it just has a bigger effect.

Meghan McCarty Carino: Let’s talk about that most recent example of the dot-com bust. Take me back to that period. What was kind of the run-up like, and what did Silicon Valley feel like when it all busted?

O’Mara: So the run-up to the dot-com boom, you know, life moves pretty fast. You have in 1994, the first “Oh, we have this browser, that could be a portal for ordinary mortals to use this newly open thing called the internet.” And Netscape comes into being and within 18 months, it’s going public, and [you have] this huge IPO, which really sets off a stock market boom for internet companies. And so you have companies like eBay and Amazon and a lot of other companies that don’t really exist anymore, that have a huge, huge ride on Wall Street. And in the span, you know, by 1999, you have these massive market valuations. And then it all popped. The last glory moment was the Super Bowl in 2000, which was filled with dot-com company ads in a way that sounds similar to all those crypto ads that were in this year’s Super Bowl, just saying. If you’re watching the Super Bowl and you see lots of companies you’ve never heard of advertising all at once, that might be a sign that there’s a bubble.

McCarty Carino: And so when the dot-com bubble burst, I mean, what was it like to have all of these kinds of unemployed tech workers in Silicon Valley?

O’Mara: It was hard. A lot of, particularly, young people had come to the Bay Area and Seattle and other tech hubs for these jobs at these companies and hoping that they too could get a ride on a rocket ship. And all of a sudden they find themselves unemployed. And some of them stuck around and tried to figure out what to do next. There were happy hours that were called pink slip parties that were supposedly for unemployed people to find prospective new jobs. There weren’t really many employers there, it was a lot of unemployed 20-somethings crying into their beer. And, you know, one thing that was a reason for the bust, the dot-com bust, is that everything was growing so fast. And it was really outpacing the markets. It was outpacing the infrastructure that was there to ship consumer goods that were ordered over the internet, for example. There wasn’t the broader internet infrastructure for large-scale commerce and communication that there is now.

McCarty Carino: And how does an industry regroup from this kind of bubble bursting? I mean, how can it affect innovation?

O’Mara: You know, one thing that busts do is they put some oxygen in the atmosphere a little bit. They create space for new companies. I point to Google as kind of one of the biggest beneficiaries of the dot-com bust. They’ve gotten their seed money, they’ve gotten $25 million of venture capital in the bank before everything went south. And because the dot-com bubble burst, all of a sudden they can now hire engineers that they couldn’t afford before. There was no cloud computing then, you actually had to buy the things to make these powerful search engines go. They were able to buy those from companies that went out of business. This is not to say, “Oh, this is all great, this is a happy story.” Look, people are losing their jobs. You know, layoffs at a big company ripple out to other companies that are part of that ecosystem that depend on the employees of said companies spending money in their shops and their restaurants, right? So I don’t want to sort of characterize it as a good news story, but this is a life cycle.

McCarty Carino: In that last downturn, there were a lot of business ideas that seemed to bomb that kind of ended up coming back around years later. I’m thinking of, like, grocery delivery. I mean, what does that tell us about what’s happening today?

O’Mara: Yeah, it’s a good caution for all of us to not be too bold in our predictions. Yeah, a company like, you know, the famous, infamous Pets.com. That’s one of the classic “dot-bomb” stories and one of those companies that bought a really expensive ad in the 2000 Super Bowl, and they were doing exactly what Chewy.com and Amazon do now, which is they’re selling dog food and other things on the internet. That’s where I buy my dog food. So there are these very tangible, material circumstances and logistics that now enable those business models to take flight. And also people are just more used to buying stuff on the internet. So there may well be things that we’re rolling our eyes at now that that are, you know, the germ of something that’s the future, and that’s certainly the bet that Mark Zuckerberg is making with Meta and the metaverse.

Related links: More insight from Meghan McCarty Carino

O’Mara mentioned those “pink slip parties,” which were basically part networking event for the newly unemployed, part bougie shindig.

And they were definitely a thing in Silicon Valley after the dot-com bubble burst, which you can read about in this 2001 Guardian article.

Typically, if you were someone who’s been laid off, you wore a red dot. If you were an employer looking to catch new talent, you wore a green dot. And the yellow dot? Well, if you were just there to party, that was the dot for you.