The Fall: Tech and the Crash of 2008

On Monday, the year that began with the highest hopes in a generation is ending with the deepest fear, and the technology industry is not immune. The stock market has fallen about a third in 2008, the worst year since the Great Depression, and the technology leaders that carried the boom have lost half their value. The crash is the December 2008 story, and the story is the lesson: the companies that survive the winter are the ones that planted the seeds of the spring.

The Fall is the subject of this article: what happened to the markets, how the crisis hit the technology industry, and how the seeds of the next era, the app store, the browser, the cloud, and the strange new paper about digital cash, were planted in the middle of the wreckage. The year is ending, and the ending is the context. This is the story of the fall, and the story is about the moment the old economy broke and the new one began.

1. The Crash

The crash was the story of the year, and the story was the numbers. The Dow Jones Industrial Average had fallen about a third from the start of the year, on track for its worst year since 1931. The broader markets had fallen further, and the technology-heavy NASDAQ had been hit hardest of all. The losses were the destruction of a decade of gains, and the destruction was the headline of the year.

The crash was also the sequence of the shocks. The year had begun with the Bear Stearns rescue in March, had continued through the summer of the mortgage failures, and had reached its climax in September, when Lehman Brothers collapsed and the global financial system nearly stopped. The government had responded with the biggest bailout in history, and the bailout had stabilized the banks and not the markets. The crash was the year, and the year was the crisis.

2. The Tech

The technology industry was not spared, and the sparing was the surprise to no one. The stocks that had led the boom were the stocks that fell the hardest: the maker of the iPhone had seen its shares cut roughly in half, the search giant had lost more than half of its value, and the giants of the PC era, the chipmakers and the software companies, had fallen with them. The industry that had created the prosperity was sharing in the destruction.

The tech companies were also feeling the recession in their businesses. The IT budgets were being frozen, the consumers were cutting back, and the layoffs were spreading through the industry: the internet pioneers, the chipmakers, and the hardware makers all announced major job cuts in the final months of the year. The industry that had grown for a decade was suddenly shrinking, and the shrinking was the reality.

3. The Winter

The winter was the mood, and the mood was the fear. The economists were saying that the recession would be the worst since the 1930s, and the predictions were the pressure. The companies were hoarding cash, the banks were not lending, and the startups that had lived on the easy money were dying quietly. The winter was the season of the credit freeze, and the freeze was the cold.

The winter was also the test of the leaders. The executives who had grown up in the boom had never managed through a bust, and the bust was the education. The companies that cut deep and focused on the core would survive, and the companies that pretended the old times would return would not. The winter was the selection, and the selection was the future.

4. The Seeds

The seeds were the strange part of the story, and the strangeness was the hope. In the middle of the worst year in a generation, the foundations of the next era were laid: the App Store had opened in July, giving the iPhone an economy of its own; the Google browser had appeared in September, starting the race for the web platform; the first Android phone had shipped, opening the mobile war; the cloud platforms had been announced, from Google's engine to Microsoft's answer; and in October, on the last day of the month, an unknown author had published a white paper about a digital currency that needed no banks.

The seeds were the paradox of the crisis. The old economy was built on credit and consumption, and the new one was being built on platforms and software, and the crash was the clearing of the ground. The companies that had built the platforms, that held the cash, that understood the shift, were the ones that would emerge from the winter. The seeds were the future, and the future was planted in the wreckage.

5. The Apple

The Apple was the symbol of the change, and the change was the pattern. The company that had been written off in the 1990s had been rebuilt around the iPod and the iPhone, and the rebuild had made it the most valuable technology company by some measures before the crash. The crash had cut its value, and the cut was the market's panic, and the panic was the noise. The company had the cash, the brand, and the platform, and the platform was the future.

The Apple was also the proof that the consumer was the engine. The phone that had launched in 2007 had become the center of a new economy of apps, and the economy was growing even as the old economy shrank. The companies that understood the consumer shift, that had built for the mobile world, were the companies that the investors would rediscover. The Apple was the symbol, and the symbol was the story.

6. The Cloud

The cloud was the shift, and the shift was the strategy. The recession was forcing the companies to cut their IT costs, and the cloud was the answer: the pay as you go servers, the software as a service, the platforms that turned the capital expense into the operating expense. The companies that had built the clouds, the search giant, the bookseller, the software giant, were positioned for the recovery. The cloud was the cost saver, and the cost saver was the winner.

The cloud was also the new model of the industry. The old model was the box, the software on the disc, the server in the closet, and the new model was the service, the data in the center, the code in the browser. The recession was accelerating the shift, and the shift was the future. The cloud was the platform, and the platform was the economy of the next decade.

7. The Lesson

The lesson of the crash was about the difference between the winter and the spring, and the difference was the preparation. The companies that survived the winter were the ones that had the cash, the focus, and the platforms, and the companies that had borrowed to buy the growth were the ones that the winter killed. The lesson was the balance sheet, and the balance sheet was the survival.

The lesson was also about the seeds. The ideas that seemed to make no sense in the boom, the open platforms, the free browsers, the digital currency, were the ideas that the crisis made necessary. The crash had destroyed the old trust, and the destruction was the opening for the new. The lesson was the timing, and the timing was the opportunity. The lesson was the winter, and the winter was the teacher.

8. The Future

The future was the question of the new year, and the question was the uncertainty. The markets could fall further, the recession could deepen, and the winter could last, and the length was the fear. The companies that had planted the seeds would have to wait for the spring, and the waiting was the test. The future was the recovery, and the recovery was the unknown.

The future was also the lesson in the making. The year 2008 would be studied for a generation, the year the old economy broke, and the study would show that the new economy was born in the breaking. The platforms, the clouds, and the strange new money were the seeds, and the seeds were already growing. The Fall is the December 2008 story, and the story is the lesson: the companies that survive the winter are the ones that planted the seeds of the spring. The year is ending, and the story is just beginning. The story of the year was also the story of the decisions that the leaders made in the dark, and the decisions were the difference. The companies that cut the costs without cutting the future, that protected the platforms and the people who built them, that kept investing in the products that would matter when the economy turned, were the companies that the recovery would reward. The crash was the selection of the leaders, and the selection was the lesson. The year that broke the old economy was the year that built the foundations of the new one, and the foundations were the platforms, the clouds, and the strange new money that no one had heard of yet.

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