Last post I explained what a bubble actually is. Companies burning cash, trying to outlast each other, hoping to be the last one standing.
Now let's talk about what happens when one pops.
Because we've seen this before. And it wasn't pretty.
The Dot-Com Bubble
Late 90s to early 2000s. Everyone was throwing money at anything with a ".com" in the name.
Pets.com spent millions on Super Bowl ads before they had a sustainable business model. Webvan raised $800 million to deliver groceries and burned through it in two years.
Investors were betting on potential, not profitability.
Sound familiar?
When Reality Caught Up
The Nasdaq dropped from 5,000 to 1,300. That's an 80% decline in market value.
But here's what people forget. It didn't happen overnight. It took about two years.
Companies kept failing. Running out of cash. Getting acquired for pennies on the dollar or just disappearing entirely.
It turned into $5 to $7 trillion in value. Gone.
60% of dot-com companies shut down entirely. 200,000 people laid off. Venture funding collapsed from $105 billion to $20 billion.
The Part Everyone Misses
The technology didn't disappear.
The internet didn't go away. It just turned out most companies building on it couldn't figure out how to make money.
Google, founded in 1998, survived. Now "Google" is a verb.
Amazon, founded in 1994, kept losing money for years. Everyone laughed at their quarterly reports. Now they dominate online retail.
eBay became synonymous with online auctions.
The bubble burst. Most companies failed. But the survivors who outlasted the chaos became the market leaders we know today.
The Pattern Is Always The Same
Bubble forms. Massive investment floods in. Too many competitors chasing the same opportunity.
Bubble pops. Cash runs out. Most companies fail.
The survivors consolidate the market and own it for the next decade.
That's what happened with the internet. That's what's happening with streaming right now. That's what's coming for AI.
Why This Time Feels Different (But Isn't)
I hear people say "AI is different because the technology actually works."
The internet actually worked too. E-commerce was real. Online services were valuable.
That didn't stop 60% of companies from failing when the money ran out.
The technology working doesn't mean the business model works. Those are two different things.
OpenAI has incredible technology. But they're losing money on every API call. That's not sustainable regardless of how good the models are.
What This Means For AI
The same consolidation is coming.
Right now there are dozens of AI companies. Most of them are burning investor cash, subsidizing usage, hoping to outlast each other.
When the bubble pops, most will fail. A few will survive and own the market.
The question is which ones. And what happens to all the businesses and developers who built on the platforms that don't make it.
The Timeline
With dot-com, it took about two years from peak to bottom.
With AI, we're probably early in that cycle. The money is still flowing. Companies are still raising massive rounds. Usage is still growing.
But the math doesn't work. At some point, it has to.
The companies with the deepest pockets will survive longest. Microsoft backing OpenAI. Google with Gemini. Meta with Llama.
The smaller players? They're on borrowed time.
What I'm Watching For
The first sign will be slower funding rounds. When VCs stop writing checks as easily, that's when the pressure starts.
Then you'll see companies trying to raise prices. Testing whether users will pay enough to cover actual costs.
Then layoffs. Cost cutting. Pivots. Acquisitions.
It won't be one dramatic crash. It'll be a slow grind as reality catches up with expectations.
That's what happened with dot-com. That's what's happening with streaming. That's what's coming for AI.
Next up in Part 3: The AI bubble by the numbers. And the math is ugly.