Silicon Insider: What Economic Recovery?

March 5, 2002 -- I'm normally an optimistic person. But when it comes to business and technology, there has always been something contrary in my nature.

When everyone I know was convinced that the dot-com boom would go on forever, I was selling every share I could. Conversely, in the face of growing pessimism about the economy, I've been positively sunny about the future.

Now, with everyone from economists to corporate executives gleefully announcing that the recession is finally over, I guess I should feel vindicated. Instead, I feel that old contrariness kicking in again.

Not that I have any doubt that we are about to enter another high-tech boom — one that may be, remarkably, not only bigger than the last one, but better managed by the players. But getting there will be tricky.

There are a lot of potential potholes, any of which we can tumble into, that will keep us from realizing all that is possible from this next wave. Here are those things I fear may keep the newly airborne economy merely a biplane and not a rocket:

An Auditor Anchor: Now that Enron's top management is being publicly crucified in front of Congress, I'm guessing that before it's all over, Kenneth Lay and crew will be punished not only for their own alleged crimes but for the entire dot-com crash. It's not fair, but probably inevitable.

Of greater concern to me is what is not happening in the accounting world. There have been a few mea culpas and divestitures of businesses by the big auditors, but frankly, most of the damage (in terms of stock price) seems to have fallen on the giant corporations that used their services.

This so-called "investor concern over accounting practices" has acted as a drag anchor on the public markets, just at the time we need them robust enough to support the next wave of public stock offerings.

Instead of this slow bleeding, what we need right now is a joint agreement by the big accounting firms, supported by the Federal Accounting Standards Board, on a new set of industry standards — both in terms of conflict of interest and, more important, regarding the actual content of the audits themselves. And, since FASB reports to the SEC, that uber-agency needs to back up these new standards with the force of law.

Otherwise, we will continue to be driving this economy while looking in the rear view mirror, with no idea what anything is really worth.

The Missing IPO Bombshell: Crucial to any tech boom is the appearance of the big Initial Public Offering. The last time around, it was Netscape, which went public to such a financial earthquake that it set the pattern for the thousand dot-coms that followed.

We need a big kick-off IPO because it gives venture capitalists a green light to begin serious investing again. VCs don't put money into new start-up companies unless they can see a sizable return in a reasonable length of time, …in other words, a big IPO sitting out there in 12 to 24 months.

Right now, America's venture capitalists are sitting on tens of billions of dollars in funds awaiting investment. They are also seeing a growing number of very good new companies. The one thing they aren't seeing is an IPO supernova. Sure, there have been a few successful public offerings in the last few weeks — Synaptics and PayPal most notably — and they are grounds for optimism. But as of yet no Netscape can be seen anywhere on the horizon.

Milton Berle No-Show: The evidence increasingly suggests the next great boom — and it will be one of the biggest in modern times — in consumer electronics is the merger of television, theatrical movies, online games and the Web into a single monolithic medium conveyed on broadband into the home.

Both Silicon Valley and Hollywood are racing toward this goal. But one factor is still missing: that single galvanizing piece of content that everyone on earth wants to see For television, in the late 1940s, it was Milton Berle. Sales of TV sets skyrocketed and turned that new technology into a cornerstone of modern life.

Everyone is betting something similar will happen with this new multimedia consumer broadband. And the current strategy is to build the stage — at a cost of hundreds of billions of dollars — on which this next Milton Berle can perform.

But so far, nothing has appeared. There remains no compelling reason for the mass audience of America to adopt broadband. Eventually they will, through just the slow natural adoption of new technology. But if we are really going to have a boom, we need something like The Sopranos or Roots or the Olympics that everyone wants to see in multimedia right now.

A Dingell(rasp)berry: Everyone knows that the best way to get broadband to every home in America is to deregulate the whole thing and set off a land rush.

Sure it will be messy, sure monopolies will take advantage of the situation, sure there may be fights in your front yard between the phone guy, the electric guy, and the cable guy over who gets to dig up your garden.

But so what? Get the lines in and then sue or arrest any miscreants for their bad behavior. That's how it worked with railroads and telephones and cable television.

Unfortunately, the one group that never understands this reality is the federal government. It was the feds who interfered with this market in the first place, and is largely responsible for the current collapse of the telecom industry, which is currently stuck with millions of miles of dark fiber optic cable that should have been humming by now.

The latest such interference by the feds is called the "The Internet Freedom and Broadband Bill," introduced by Rep. Billy Tauzin, Lousiana Republican, and the ever-intrusive Rep. John Dingell, a Michigan Democrat. As always, it is an attempt to speed up broadband installation, and as always, it attempts to do so the same way Lenny tried to pet rabbits in John Steinbeck's Of Mice and Men.

The next economic boom — consumer and industrial — will be broadband based. If we don't have that broadband, we won't have that boom. And if the government continues to interfere, even out of good intentions, I can guarantee we will not have that boom.

Discontinuities: Finally, two very big potholes. First, every new tech era requires a killer app. People often forget that the microprocessor didn't take off until the PC came along, and the PC in turn needed spreadsheets and word processing. The Mac needed desktop publishing, and the Internet needed Netscape Navigator.

So where is it? It might be visual search engines, but none have yet to appear on the scene. Instant Messaging? Teenage girls love it, but it's old news. Cheap digital cameras? Not exactly earthshaking. Something to do with micro-machines? Maybe, but it's hard to imagine mass adoption.

The answer is: We just don't know. Killer apps, almost by definition, cannot be predicted. We just have to have faith that something will appear. And that is asking a lot. But as Intel CEO Craig Barrett recently told his employees, the only way out of this recession is through innovation. Obviously he too is praying for that killer app.

Second, and finally, the biggest pothole in the path to the next boom, is the one we dread most: another Sept. 11, an event that takes the wind out of our lives. About this one too, we can only pray … and stay vigilant.

Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail.