AUSTIN, Texas -- The new economy hiccup that sent the Nasdaq reeling and investors running for the hills is only the beginning of a long process of integrating new technologies into the traditional business sectors.
Since last year, the Nasdaq has dropped 3,000 points, drying up venture capital and forcing several hundred dot-coms out of business. While the sudden drop scared off investors, many who witnessed the crash believe it was a necessary part of the long-term growth of technology companies.
"We're now in a cycle of demanded innovations," said John Battelle, CEO of Standard Media International and a founding editor at Wired magazine. "When profits are down and there is no money, you have to innovate to stay in business."
The troubles technology companies faced weren't all self-made, said John Heilemann, long-time technology journalist and author of Pride Before the Fall: The Trials of Bill Gates and the End of the Microsoft Era.
In conversations with Silicon Valley executives, Heilemann said many pointed toward the incredible speed that traditional businesses reacted to emerging technologies as part of the reason so many pure dot-coms went out of business.
In the 1980s, American businesses faced stiff competition from Japanese companies that streamlined their operations and created a better way of doing business. Many large corporations teetered on the brink of financial ruin for several years as they tried to catch up with the new business models.
So, Heilemann said, when the Internet began emerging as a competitor, executives took heed of the lessons they learned a decade ago.
What has emerged is a period of integration as the old economy is merged with the new economy.
"People assume the dot-coms were a hoax, and I think that is wrong," Heilemann said. "The Internet is becoming fully integrated into every part of the economy. The dot-coms didn't all die in vain."
Part of the reason people have such a negative view of current technology companies is the benchmark that was established during the boom.
When Loudcloud went public last week, its 2 percent gain on the first day of trading was viewed as a disappointment. Before the great IPO boom however, that company's offering would have generated little reaction.
The sentiments of Battelle and Heilemann, offered at the kick-off of the SXSW Interactive festival in Austin, echoed the historical analysis of the current trends.
Patrick Spain, the CEO of financial information website Hoovers, took the two several centuries further, tracing the line of innovation, destruction and rebuilding back to fifth century Athens, Greece.
Spain said innovative new ideas -- such as the Athenians' development of a democratic government -- are oftentimes co-opted by others, like the Romans.
Notwithstanding the crash, Spain said the dot-com e-commerce crash didn't diminish the fundamental change in how people access information.
"We have seen one of the most important changes in our culture in the past twenty years," Spain said. "The Internet immediately globalized communications, and it gave people the ability to do research and find obscure information very quickly."
In fact, venture capitalist Mike Rosenfelt said the rush to create new businesses, while excessive, helped drive the innovations that will eventually serve as the backbone for the Internet.
Rosenfelt said that, despite the crash, VCs still hold the purse strings to billions of dollars that they are waiting to invest as soon as the next round of entrepreneurs develop strong business models.
He also pointed out that this phenomenon wasn't unique to the '90s. In the mid-80s, there were well over 20 major players competing to make personal computers. In just a few short years that group was whittled down to a handful of players.
"Every time there is a major, disruptive technology, there is going to be an irrational exuberance for funding," said Rosenfelt, adding that that funding is what allows innovation to occur.
