InformationWeek

he tagline for American Beauty, the brilliant film that won the 1999 Academy Award for Best Picture, was "Look closer." What was, by all appearances, a typical American family in a typical American suburb turned out to be anything but.

The deceptive nature of appearances, especially appearances that are well-crafted and aggressively spun, is hardly a new theme in the arts or in business. Yet in our limping economic and technology state, it seems appropriate to revisit the discussion of what's real and what's not, because the lessons of the past two years or so haven't fully sunk in.

Healthy skepticism took a beating during the heady days of the dot-com run-up. Those who questioned the "inevitable" New Economy realities were called dinosaurs. Haven't you seen the headlines? Don't you watch CNBC? It was all there in the universal language of numbers. We had a new town crier for the 21st century global village, and it wasn't Walter Cronkite. It was the stock ticker.

As we all know, the stock market was wrong. And its fall was more than just the bursting of the latest speculative bubble. No, this was a mass illusion of confusing the stock market with reality--not just in an investment sense, but in fundamental ways of thinking about what it means to build and grow a business.

To a great extent, the stock market became its own reality. It reminded me of something I heard on sports-talk radio at the start of one of the National Football League's midseason player strikes in the 1980s. The host was interviewing a Las Vegas bookmaker about the challenge of setting point spreads between teams full of replacement players--unknowns and cast-offs. The bookie explained that perhaps a home-field advantage or a more experienced quarterback was worth a point or two, but basically his job in that situation was pure arbitrary speculation, and that was just fine with him.

"All we have to do is hang a number up there and people will bet," he said. "They'll let us know pretty fast if we need to adjust it." A bookie's goal is to have the same amount wagered on each team, so if the point spread is too generous, he'll adjust it to get more people to bet the other way. It's as pure a market mechanism as there is.

Some of the dot-com market valuations of 1999 and 2000 reminded me of bets on NFL replacement players--untested, unproven, and with little basis in reality. But there were so many constituencies beating the drum for the IPO du jour that it was very difficult not to be convinced: Wall Street analysts, market researchers, venture capitalists, business-school professors, and consultants--whether the newly minted Scients and Viants or the recent converts at the staid old Big Eight or Six or whatever number it is this year. And of course, the media, at times admittedly including this columnist.

A truckload of books hit the shelves. But one sounded a rare cautionary note, Irrational Exuberance (Princeton University Press, 2000) by Yale University economics professor Robert Shiller. Borrowing his title phrase from a 1996 speech by Fed chairman Alan Greenspan, Shiller dissected the herd mentality that drove dot-com market caps into Fortune 100 territory. He compared the phenomenon to a Ponzi scheme on steroids, with everyone believing in a new reality that wasn't there. Shiller looks pretty prophetic today.

OK, we all agree that that little piece of history is over. But have the lessons of overhype really been learned? Not if you listen to some proponents of wireless technology, or replay TV, or high-speed cable access, or other "huge potential" technologies.

Over the last few months, I've been struck by how many companies try to spin the great Internet crash as good news in disguise. "Oh, this is just eliminating the lousy, clueless startups," they scoff. "The good, solid companies, the ones with real products and real customers, will thrive." Excuse me? To cite just two examples of very solid companies that are far from thriving, look at Ariba and Commerce One. Were they overhyped and overvalued? Sure. But no one could argue they didn't have real products and big customers, two noteworthy symbols of companies of substance. Yet their stock prices have fallen as far as those of any Huge Successful IPO Without Revenue.com.

It's time to face reality: Circumstances in the technology industry are bad. Will they get better? Yes. But in the meantime, let's stop trying to find the next hot, overhyped technology in the hopes of returning to glory days that were based on illusion and illogic. In those days, the admonition was Get Big Fast. Let's try on a new one: Get Real Now.

Write to Clinton Wilder at cwilder@cmp.com