Nov 1, 2022 - Technology

Tech's painful year 2000 flashback

Illustration of a cursor arrow drooping downward

Illustration: Annelise Capossela/Axios

2022 is looking unhappily like 2000 for the tech industry.

The big picture: In both this year and 2000, tech stocks took a tumble in the spring after peaking in the stratosphere. Then six months later, with a recession looming, big companies started cutting payrolls and startups began measuring burn-rate runways.

Other parallels: The 2000 market, like today's, got hit by the Fed's tightening interest rates after a spell of easy-money policies (in 2000, it was to protect against Y2K bug problems). And in November 2000, as today, the U.S. was heading into a tight national election.

Back in fall of 2000, CEOs and workers knew that dot-com mania was over.

  • But they couldn't know they were on the precipice of a massive market collapse that would last several years, level much of the industry landscape, and clear the field for a new generation of platforms and winners.
  • They also couldn't know that a nascent market revival in 2001 would get swamped by the aftermath of 9/11, prolonging the slump.

What we're watching: Nobody today knows whether our current replay of 2000 will keep going into the full-on "bust" phase.

Why it matters: Generations of companies and workers who joined tech over the past two decades have no memory of what a big downturn feels like or how bad it can get.

  • The industry's boom over the past 20 years has been punctuated by occasional moments of doubt, but none of those pull-backs turned into a full rout.
  • That taught younger workers to view tech as immune to recessions and "number go up" as the natural state of the market.

Of note: In every dip and downturn since 2000 — most notably, the Great Recession and financial crisis of 2008-09 — tech has been a haven for investors. But this year, as in 2000, tech firms took the lead in taking losses.

Driving the news: Weak earnings last week punished Big Tech stocks and brought the dot-com-era parallels home, as Axios' Matt Phillips reported.

  • Meta (Facebook) reported its second consecutive quarter of year-over-year revenue declines.
  • Alphabet (Google) said its ad sales seriously slowed, causing profits to drop by 27% last quarter compared to the same quarter the year prior, and also saw a deceleration in growth in its cloud business.
  • Microsoft’s stock slid after it said growth in its Azure cloud business slowed compared to same quarter the year prior.
  • Amazon’s AWS cloud business had its slowest ever quarter in revenue growth, but its advertising business proved slightly more resilient than some of its peers, given its tie to commerce.
  • Apple fared best among the tech giants, as it generally has in recent quarters.
Big Tech stock performance
Data: Yahoo Finance; Chart: Tory Lysik/Axios Visuals

In one sign of change, the long-overheated market for software developers appears to be cooling down, with a 29% decrease in job postings this year.

The biggest losers in any downturn are likely to be tech-made billionaires. They saw their net worths balloon for years and now confront massive losses on paper.

  • Employees who counted on stock-option rewards — particularly the newest ones who joined big companies during a big hiring splurge over the past year — will also face disappointment.

Between the lines: Tech has always been a cyclical industry, and its pendulum tends to overshoot at both peaks and bottoms.

The bottom line: A prolonged tech downturn could foster long-term structural changes in the tech sector, hobbling some of today's leaders and opening breakthrough opportunities for newcomers.

  • In 2000, AOL and Yahoo were the kings of the online ad business and Microsoft was the "evil empire" targeted by a federal antitrust crusade.
  • There was also a little company called Google, just two years old, that earned near-zero revenue but ran a knockout search engine.
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