I have had a chance lately during long flights to boring places to think about the fundamental change that seems to be taking place in that tiny world in which I live — the high tech business. The stock markets are in turmoil, madly heading either up or down with the underlying trend being modestly downward as the smart money carefully takes its profits and prepares for the intermission followed by Act II. But what will Act II be like? This is what is becoming clear in my mind and ought to be of interest not only to investors, but also to anyone thinking of starting or joining a high tech company.

One thing that is clear is what Act II won't be. It certainly won't be another round of companies with no technology, no idea how to make a profit, and no underlying concept other than selling books or drugs or groceries or pet supplies over the Net. The era of the dot-com is fading fast and I can tell you why: youthful optimism.

The most basic concept of prognostication — predicting the future — is that we tend to overestimate change in the short term and underestimate it in the long term. Both effects are hard at work in the current situation. For 25 years, we underestimated the impact of the Internet, because that's how long it took to actually be a factor in the lives of normal people. But then we more than made up for this perfectly logical oversight by then overestimating where and when the Net would go as a business proposition. Hence the dot-com phenomenon. I'm not saying there isn't a role for retail commercial activity on the Net. There are already big successes in this area like Yahoo!, eBay, and Dell. Dell? Yes, Dell. Dell sells more each day on the Internet than almost any other company. But Dell does that kind of business by using the Internet as an alternative to the telephone, which was an alternative to mail order, which was an alternative to storefronts that the company never had. Dell was always in the dot-com business. The company just never knew it.

Which brings us back to what the heck is going on. This change we are entering is more than just the next venture capitalist fad. It is a realization on the part of the venture capital community that there is some return to reason by the public markets. It's not that the Internet isn't really the Next Big Thing, just that it is going to take us all a little longer to get there. So what, then, will those VCs do with the $50-100 billion they plan to stuff this year into new little companies? I'm sure now that I know.

There is a concept in the stock market called a "flight to value," which simply means that when the hot market segment inevitably cools people move their money into old favorites, companies like General Electric. But while we tend to look at this flight as being from one industry to another, or from small cap stocks to large cap, much the same thing is always happening WITHIN market segments and industries. Worried about the Internet? Buy Cisco. Cisco is just as much an Internet stock as is Amazon.com, but Cisco is perceived as having lasting value because it comes from a different part of the life cycle of the Internet, itself.

What's valuable here is this concept of an industrial life cycle, which is what brings us back to the idea of youthful optimism. The general failure of the dot-coms stems from not having a realistic understanding of this life cycle. If the Internet really was the Next Big Thing, then being the first outfit to sell books on the Internet was an important thing to do, but ONLY if you could survive long enough for the online buying community to grow large enough to make it a sustainable business. This is the dilemma Jeff Bezos has faced from the beginning with Amazon.com. From the very start, he has essentially shipped a 10 dollar bill with every book in the form of corporate losses — losses that until recently have been paid for by selling stock to you and me. Bezos had to take the chance that he'd be too early, because the payday if he timed it right would be unimaginably large. Now I am not saying by any means that Amazon.com is going away. It is just a convenient example. But I AM saying that 10,000 or more dot-coms ARE going away this year, triggering the current flight to value within the segment.

So where is the value? I think we find it by examining the Internet as if it was a highway or a railway. The concept is simple: if there are no roads, don't open a McDonald's restaurant. The first commercial opportunity along the path of a highway or railway isn't selling books, it's the business of building the highway or railway. That's why Cisco is the Internet value haven for investors — because its whole business is building the information super railway, a task that is far from finished. But Cisco can only grow so large, and it is unlikely to grow 50 percent per year for the next decade. So where do investors and would-be entrepreneurs look when their goal is growth of 50 percent PER MONTH? They examine the life cycle just a little bit closer.

A few weeks ago I wrote about an outfit in Santa Fe, New Mexico, called The Prediction Company, which operated in a building that had been originally a brothel used by workers who built the Santa Fe railroad. Here's the life cycle at work. Santa Fe grew because of the railroad, but successful early businesses grew not by serving the town but by serving the railroad. The same thing is true with today's Internet, so the next wave of successful companies are going to be those that help build and serve and leverage the Internet infrastructure. The dot-coms assumed that the Internet was closer to being finished than it really was. The successful startups this year will be those that help to finish the job.

So if you want to start a company to sell greeting cars on the Net, don't expect to get venture funding. Don't even expect to get a venture capitalist to meet with you. But if you want to start a company to address bandwidth, congestion, or security issues on the Net, you'll have VCs lined-up around the block waiting to give you bags of money. Internet user communities are suddenly meaningless unless those communities are instantly profitable. It used to be enough to have a million users. No more.

And the IPO exit strategy is fading, too. There will still be successful IPOs, but other exit strategies are looking better. After all, at the heart of the IPO is a lie, that the founder really intends to do this lousy job until he dies and that the company even intends to be around three to five years from now. Market realities are forcing founders to admit that they really want to retire and buy expensive toys and that the logical place for most startups is within more established organizations. Look for fewer IPOs, then, and more mergers.

Let me give you an example. Symantec is a company that has always grown by acquisition, but until very recently hasn't had all that much to show for it. Then company founder Gordon Eubanks was ejected, and the Net suddenly started suffering a rash of security and virus problems. Pow! Symantec is a hot stock and is worth today three times what it was a year ago. Can this last? Probably not. So while Symantec's stock is high, it is a good chance for management to change the company into what we've just described, an Internet infrastructure company. Symantec is looking for a big acquisition.

Check Point Software, like Symantec, is a public company, but Check Point is very much in the Internet infrastructure business. Check Point makes software for Virtual Public Networks. This will be one of the hot product areas for the next couple of years. According to loose lips at Symantec, the anti-virus company expects to shortly buy Check Point, making the Check Point founders instantly Symantec's largest shareholders and - this is the important part - not tying their hands with a lock-up that keeps the founders from converting those shares instantly into real money. Symantec becomes an Internet infrastructure company and everyone gets a big boat that much sooner.

Remember you heard it here first.

(Editor's note: In case anybody was wondering, Bob Cringely does not own stock in any of the companies mentioned above. )