January 10 marks the 15th anniversary of the announcement of a merger that most observers agree was just about the worst in history: the fusing of the start-up AOL and the venerable Time Warner. This year also marks AOL’s 30th birthday as a company. Finally, it’s also the 30th anniversary of a pivotal piece of research that we ruefully keep re-discovering with each entrepreneurial boom that comes along.

At the time the merger negotiations began, AOL was enjoying intense investor interest, to the point where a company that was only 15 years old and had been public for only 8 years had a higher market capitalization than media powerhouse Time Warner. Many thought the world had truly been turned upside down when a company that flooded mailboxes with CDs and infuriated customers with frequent busy signals could acquire Time Warner. Ah, the magic of the marketplace.

The merger was originally heralded as “transformative” – the first actualization of the long-promised fusion of content and delivery channel. Time Warner would instantly solve its concerns about being relevant in an online age, and gain access to tens of millions of AOL customers. AOL, for its part, could leverage the beloved Time Warner brands across its properties and make its dial-up subscription services more valuable — even as the threat of always-on broadband was making itself known. Other companies wondered whether they should pursue mergers of their own, thinking that perhaps this deal was going to be the wave of the future.

Unfortunately, for that strategy to work, the people in the merged company would have to work across silos, cooperate, and otherwise play nicely together. And they hated each other. What was simple friction and cultural distaste in the beginning hardened into visceral enmity after the dot-com crash led to the deflation of the company’s market cap (from $226 billion to about $20 billion) and the company had to write-down nearly $99 billion of goodwill in 2002, a number that even hardened Wall Street Journal reporters termed “astonishing.”

Insight Center Making Money with Digital Business Models Sponsored by Accenture What successful companies are doing right

But today we’ve learned our lesson – there’s no way we’ll support the wacky valuations that those smoking-something dot-com-boom investors did, right? I’m not so sure. Riddle me this: Uber, the car sharing service, was recently valued at $41 billion. As critics have pointed out, the entire taxi and limousine industry in the US generates $11 billion in revenue per year.

Yes, one might argue, Uber is “transformative” (there’s that word again) because it will dramatically increase the number of people who can afford to hire a driver rather than drive themselves or own a car. But this assumes that Uber can somehow lock in the lion’s share of that business. With few barriers to entry, there’s no reason many more players wouldn’t jump into the business, including existing taxi drivers. Unlike Google, Facebook, or Twitter, which have strong network effects (meaning that the more people that use them, the more valuable they become), Uber really doesn’t, beyond its ability to maintain adequate driver coverage. Further, as it deepens its reach into more of the population, its troubles with safety, privacy, driver vetting, and even criminal behavior are likely to increase as well. $41 billion looks pretty rich to me.

Back in 1985, Bill Sahlman and Howard Stevenson of Harvard wrote a brilliant case and article they called “Capital Market Myopia”. The phenomenon that drew their attention was that participants in capital markets were ignoring the collective implications of their individual investment decisions. They were simply unwilling to back away from a market all the experts agreed was going to be tremendously exciting.

Their original study was of new entrants into the Winchester disk drive industry, a sector every bit as hot and exciting back then as start-ups like Uber are today. Between 1977 and 1984, venture capitalists invested over $400 million in 43 manufacturers of the drives. Some (12) of the firms had an IPO, and collectively enjoyed valuation that at its peak was $5.4 Billion. At the peak of the frenzy, some 70 companies participated in this space. It didn’t end well. The public companies’ valuations dropped to $1.4 billion in 1984, and investors lost millions in the ensuing shakeout.

So what does an old bubble in now-dusty disk drives have to teach us about investments today? Well, for starters, Silicon Valley is once again awash in capital, which in turn means companies are burning through that capital quickly, which in turn increases the likelihood of irrational investing. They are also amidst the frenzy of a winner-take-all mentality: the theory of the case is that the firm that gains the biggest market share first will ultimately triumph in its sector. It’s set up perfectly to induce what is sometimes called increasing commitment to a failing course of action – if you stop spending, you know what you’ll lose, while if you keep investing, the dream of a big return can be kept alive. But, people, we have been there before – remember WebVan, Value America, Boo.com, Pets.com, and all the rest?

So here’s a little statistic to ponder: According to the Wall Street Journal, there are now 48 private companies in the US valued at over $1 billion. During the peak of the dot-com boom, there were only 10 companies valued over $1 billion.

But all 48 of them are transformative, right?