Shopping on line can be easy, simple and save you lots of money. It can also take a lot of your time, frustrate you, and result in unwanted purchases. Now the same can be said for regular high street shopping, but with the vast opportunity presented by the Internet it will pay you to spend a few minutes reading this and understanding how to better optimize your Dot Com Boom shopping experience:
1. Compare - without doubt the biggest advantage that the Dot Com Boom offers shoppers today is the ability to compare thousands of Dot Com Boom at a time. This is a great thing, but not necessarily all the time! Too much can be daunting at times so take advantage of the great comparison sites and where possible let them do the hard work for you.
2. Research - if it has been said it will be on the internet. Ignorance is no longer a justifiable reason for buying the wrong thing. Take the time to research in detail everything that you could possible want to know about
3. Testimonials - don't know anybody that has bought a Dot Com Boom? Wrong! If the Dot Com Boom is good the internet will let you know. Use the Internet as a friend and get testimonials before you buy.
4. Questions - Got a question about Dot Com Boom then search the Forums, FAQ's, Blogs etc. Don't be afraid to ask .....
5. Reputation - Never heard of the company selling Dot Com Boom? Don't worry, no reason why you should know every company in the world, but you know someone that does! Use the internet to find out what people are saying about Dot Com Boom and build up a picture of their reputation for sales, returns, customer service, delivery etc.
6. Returns - still worried that even after all of the above your Dot Com Boom wont be what you want? Check out the returns policy. There is so much competition now that someone, somewhere is bound to offer the terms that you are comfortable with.
7. Feedback - happy with your Dot Com Boom then let people know, after all you are depending on others people input in your buying decision, so why not give a little back.
8. Security - check for the yellow padlock on the Dot Com Boom site before you buy, and the s after http:/ /i.e. https:// = a secure site
9. Contact - got a question about Dot Com Boom, or want to leave a comment then check out the sites contact page. Reputable companies have them and respond.
10. Payment - ready to pay for your Dot Com Boom, then use your credit card or PayPal! Be aware of companies that don't accept them, there may be genuine reasons but given the huge amount of choice you have when buying online there is no reason at all not to buy via credit card or PayPal.
The "
dot-com bubble" was a economic bubble covering roughly 1995–2001 (with a climax in 2000) during which
stock markets in Western world saw their value increase rapidly from growth in the new quaternary sector of industry and related fields. The period was marked by the founding (and, in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as
Dot-com company. A combination of rapidly increasing stock prices, individual
speculation in stocks, and widely available
venture capital created an Irrational exuberance in which many of these businesses dismissed standard
business models, focusing on increasing market share at the expense of the bottom line. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy
early 2000s recession in the developed world.
The bubble builds
The venture capitalists saw record-setting rises in stock valuation of these and other similar companies, and therefore moved faster and with less caution than usual, choosing to hedge the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998–99 helped increase the start-up capital amounts. Although a number of these new
entrepreneurs had realistic plans and administrative ability, most of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot-com concept.
A canonical "dot-com" company's
business model relied on harnessing network effects by operating at a sustained net loss to build
market share (or
mind share). These companies expected that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.{{cite book] and especially initial public offerings of stock to pay their expenses. The novelty of these stocks, combined with the difficulty of valuing the companies, sent many stocks to dizzying heights and made the initial controllers of the company wildly rich on paper.
An annual event started in 1995, the
Webby Awards, working to recognize the best websites on the Internet. The event was typically an extravaganza held annually in
San Francisco, California, near the heart of
Silicon Valley. The ceremonies mirrored the flashy dot-com lifestyle with costumed guests, modern dancers, and
faux-paparazzi to make guests feel important. The event peaked in 2001 with thousands in attendance. In 2002 it was a more somber event with only several hundred guests and little of the excess of the late 1990s. In 2003 the awards were reduced to a virtual event because many of the nominees could not fly to San Francisco due primarily to corporate belt-tightening and fear of losing their jobs. The 2005 and 2006 editions were held in New York City.
Historically, the dot-com boom can be seen as similar to a number of other technology-inspired booms of the past including Railway mania in the 1840s, automobiles and radio in the
1920s,
transistor in the 1950s, computer time-sharing in the 1960s, and home computers and
biotechnology in the early
1980s.
Soaring stocks
In financial markets a stock market bubble is a self-perpetuating rise or boom in the share prices of stocks of a particular industry. The term may be used with certainty only in retrospect when share prices have since crashed. A bubble occurs when speculators note the fast increase in value and decide to buy in anticipation of further rises, rather than because the shares are undervalued. Typically many companies thus become grossly overvalued. When the bubble "bursts", the share prices fall dramatically, and many companies go out of business.
The dot-com model was inherently flawed: a vast number of companies all had the same business plan of
monopoly their respective sectors through network effects, and it was clear that even if the plan was sound, there could only be at most one network-effects winner in each sector, and therefore that most companies with this business plan would fail. In fact, many sectors could not support even one company powered entirely by network effects.
In spite of this, a few company founders made vast fortunes when their companies were bought out at an early stage in the dot-com stock market bubble. These early successes made the bubble even more buoyant. An unprecedented amount of personal investing occurred during the boom, and the press reported the phenomenon of people quitting their jobs to become full-time day trading.{{cite web|first=Ray|last=Johns|title=Daytrader Trend|work=Online Newshour: Forum|publisher=PBS|date=1999-03-04|url=http://www.pbs.org/newshour/forum/february99/daytraders.html|accessdate=2007-10-09-->{{cite web|first=Robert X.|last=Cringely|authorlink=Robert X. Cringely|title=There's a Sucker Born Every 60,000 Milliseconds|work=I, Cringely|publisher=PBS|date=1999-12-16|url=http://www.pbs.org/cringely/pulpit/1999/pulpit_19991216_000634.html|accessdate=2007-10-09-->
Free spending
According to dot-com theory, an internet company's survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. The phrase "Get large or get lost" was the wisdom of the day. At the height of the boom, it was possible for a promising dot-com to make an
initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit - or, in some cases, even any revenues. In such a situation, a company's lifespan was measured by its burn rate; that is, the rate at which a non-profitable company lacking a viable business model runs through its capital served as the measuring stick.
Public awareness campaigns were one way that dot-coms sought to grow their customer base. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with
onomatopoeia nonsense words that they hoped would be memorable and not easily confused with a competitor.
Super Bowl XXXIV in January 2000 featured seventeen dot-com companies that each paid over two million dollars for a thirty-second spot. By contrast, in January 2001, just
three dot-coms bought advertising spots during
Super Bowl XXXV. In a similar vein, CBS-backed IWon gave away ten million dollars to a lucky contestant on an 15 April, 2000, half-hour primetime special that was broadcast on CBS.
Not surprisingly, the "growth over profits" mentality and the aura of "new economy" invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with
stock options in lieu of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.
Cities all over the United States sought to become the "next Silicon Valley" by building network-enabled office space to attract internet entrepreneurs. Communication providers, convinced that the future economy would require ubiquitous broadband access, went deeply into debt to improve their networks with high-speed equipment and
fiber optic cables. Companies that produced network equipment, such as
Cisco Systems, profited greatly from these projects.
Similarly, in Europe the vast amounts of cash the Mobile phone operators spent on
3G-licences in
Germany, Italy, and the
United Kingdom, for example, led them into deep debt. The investments were blown out of proportion regardless of whether seen in the context of their current or projected future
cash flow, but this fact was not publicly acknowledged until as late as 2001 and 2002 . Due to the highly networked nature of the
Information technology (information-technology) industry, this quickly led to problems for small companies dependent on contracts from operators.
Thinning the herd
index peaked in March 2000, reflecting the high point of the dot-com bubble.Over 1999 and early 2000, the Federal Reserve had increased interest rates six times, and the runaway economy was beginning to lose speed. The
dot-com bubble burst, numerically, on
March 10, 2000, when the technology heavy
NASDAQ Composite index peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before. The NASDAQ fell slightly after that, but this was attributed to correction by most market analysts; the actual reversal and subsequent bear market may have been triggered by the adverse findings of fact in the
United States v. Microsoft case which was being heard in
United States federal courts. The findings, which declared
Microsoft a
monopoly, were widely expected in the weeks before their release on April 3.
One possible cause for the collapse of the NASDAQ (and all dotcoms) were massive, multi-billion dollar sell orders for major bellwether high tech stocks (Cisco Systems, IBM, Dell, etc.) that happened by chance to be processed simultaneously on the Monday morning following the March 10 weekend. This selling resulted in the NASDAQ opening roughly four percentage points lower on Monday March 13 from 5038 to 4,879-the greatest percentage 'pre-market' selloff for the entire year.
The massive initial batch of sell orders processed on Monday, March 13 triggered a chain reaction of selling that fed on itself as investors, funds, and institutions liquidated positions. In just three days the NASDAQ had lost nearly nine percent, falling from roughly 5050 on March 10 to 4580 on
March 15.
Another reason may have been accelerated business spending in preparation for the Year 2000 problem switchover. Once New Year had passed without incident, businesses found themselves with all the equipment they needed for some time, and business spending quickly declined. This correlates quite closely to the peak of U.S. stock markets. The Dow Jones Industrial Average peaked on January 14, 2000 (closed at 11,722.98, with an intra-day peak of 11,750.28 and theoretical peak of 11,908.50) and the broader S&P 500 on March 24, 2000 (closed at 1,527.46, with an intra-day peak of 1,553.11); while, even more dramatically the UK's
FTSE 100 Index peaked at 6,950.60 on the last day of trading in
1999 (
December 30). Hiring freezes, layoffs, and consolidations followed in several industries, especially in the dot-com sector.
The bursting of the bubble may also have been related to the poor results of internet retailers following the 1999 Christmas season. This was the first unequivocal and public evidence that the "Get Big Fast" internet strategy was flawed for most companies. These retailers' results were made public in March when annual and quarterly reports of public firms were released.
By 2001 the bubble's deflation was running full speed. A majority of the dot-coms ceased trading after burning through their
venture capital, often without ever making a net
profit. Investors often jokingly referred to these failed dot-coms as either "dot-bombs" or "dot-compost".
Aftermath
On
January 11, 2000, America Online, a favorite of dot-com investors and pioneer of dial-up internet access, acquired
Time Warner, the world's largest media company. Within two years, boardroom disagreements drove out both of the chief executive officers who made the deal, and in October
2003 AOL Time Warner dropped "AOL" from its name. The acquisition thus became a symbol of the dot-coms' challenge to "old economy" companies and the old economy's ultimate survival. The revolutionary optimism of the boom faded, and analysts once again recognized the relevance of traditional business thinking.
Several communication companies, burdened with unredeemable debts from their expansion projects, sold their assets for cash or filed for bankruptcy. WorldCom, the largest of these, was found to have used accounting scandals to overstate its profits by billions of dollars. The company's stock crashed when these irregularities were revealed, and within days it filed the largest corporate bankruptcy in U.S. history. Other examples include
NorthPoint Communications,
Global Crossing, JDS Uniphase, XO Communications, and
Covad Communications. Demand for the new high-speed infrastructure never materialized, and it became
dark fiber. Some analysts believe that there is so much dark fiber worldwide that only a small percentage of it will be "lit" in the decades to come.
Many dot-coms ran out of capital and were acquired or liquidation; the domain names were picked up by old-economy competitors or domain name investors. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like
Citigroup and
Merrill Lynch millions of dollars for misleading investors. Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as Amazon.com and eBay, survived the turmoil and appear to have a good chance of long-term survival.
Recent research suggests, however, that as much as 50% of dot-coms survived through 2004, reflecting two facts: the destruction of public market wealth did not necessarily correspond to firm closings, and second, that most of the dot-coms were small players who were able to weather the financial markets storm.
Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. In the U.S.,
Offshoring and the recently allowed increase of skilled visa "guest workers" (e.g., those participating in the U.S. H-1B visa program) exacerbated the situation. University degree programs for computer-related careers saw a noticeable drop in new students. Anecdotes of unemployed programmers going back to school to become accountants or lawyers were common.
Some believe the crash of the dot-com bubble contributed to the United States housing bubble in the U.S.. Yale economist Robert Shiller said in 2005, "Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors. These days, the only thing that comes close to real estate as a national obsession is poker" (from
Barron's Magazine's article " The Bubble's New Home", 20 June 2005).
In September 2005,
The Economist referred to discussion of "Web 2.0", accompanied by rumors that Microsoft was considering buying America Online (AOL), as "Bubble 2.0".
In
2006, some speculated that a new dot-com bubble might be at hand, citing the acquisition of Intermix Media (owner of MySpace) by News Corporation, Skype by eBay and YouTube by Google as well as the possible acquisition of
Facebook by
Yahoo!
List of companies significant to the bubble
For discussion and a list of dot-com companies outside the scope of the dot-com bubble, see Dot-com company.
- About.com
- Alcatel (France)
- Altavista
- Ameritrade, now TD Ameritrade
- Angelfire, established in 1995, later purchased by Lycos
- AOL
- Amazon.com
- Boo.com, now owned by Fashionmall.com
- CDNOW, now owned by Amazon.com
- Cisco Systems, the most prominent network equipment manufacturer at the time
- CMGI
- CNET
- DoubleClick
- eBay
- e.Digital (EDIG) - Obscure OTC-traded company that experienced a brief 35,000% internet message board fueled increase in its share price.
{{cite news|url=http://www.cavalierdaily.com/CVArticle.asp?ID=6633&pid=657|title=The Cavalier Daily, November 20, 2000
-->
- Enron, through EnronOnline
- eToys.com
- E*TRADE
- Excite, purchased by the ISP @Home Networks on January 19, 1999 for $6.7 billion and changed the name to Excite@Home Networks
- France Telecom
- Freeinternet, the fifth largest Internet service provider, famous for its mascot "Baby Bob"; went bankrupt in 2000; Baby Bob was later sold to Quiznos Sub
- GeoCities, purchased by Yahoo! for $3.57 billion in January 1999
- govWorks, the doomed dot-com featured in the documentary film Startup.com
- Hotmail
- Internet Capital Group
- InfoSpace (Ticker INSP) - In October 1999, this stock was priced at $96.88. In March of 2000, it had reached $1385.00 per share, only in time to crash down to $20.00 per share one year later.
- Kozmo.com, shut down in April 2001, featured in the documentary film e-Dreams
- Kibu, shut down in October 2000
- Lycos, founded in 1995, bought by Terra Networks in 2000 for $12.5 billion, then sold to Daum Communications in 2004 for $95 million
- mortgage.com, formerly 1st Mortgage Network spun off Mortgage Systems International (MSI). ABN Amro Mortgage Group purchased the URL, and moved National Lending Center from Ann Arbor Michigan to take over the lease in the "White Elephant" building in Sunrise Florida. ABN Amro Mortgage Group has been since purchased by CitiMortgage Group in March 2007.
- Netscape
- Network Solutions, the key domain name registrar for WWW names at the time
- PayPal, now a subsidiary of eBay
- Pets.com
- Priceline.com
- Sun Microsystems, a contributor to internet technologies; used the corporate slogan "We Put The Dot In Dot Com"
- Telefonica (Spain)
- Thawte, purchased by VeriSign for $575 million in 1999
- theGlobe.com, set a record for one-day share price gain (606%) on its IPO, hitting $97; shares now trade for less than a nickel
- Travelocity
- Tripod.com
- VeriSign, which went from a high of $258.50 in March of 2000 to a low of $65.38 in December of 2000
- Webvan, went bankrupt in 2001
- WorldCom, at one time controlled a majority of US Internet backbone, through acquistion of UUNet and MCI Inc.; acquired by Verizon after financial scandal
- Yahoo!
References
Further reading
- Cassidy, John. Dot.con: How America Lost its Mind and Its Money in the Internet Era (2002)
- Daisey, Mike. 21 Dog Years Free Press. ISBN 0-7432-2580-5.
- Kindleberger, Charles P., Manias, Panics, and Crashes: A History of Financial Crises (Wiley, 2005, 5th edition)
- Goldfarb, Brent D., Kirsch, David and Miller, David A., "Was There Too Little Entry During the Dot Com Era?" (April 24, 2006). Robert H. Smith School Research Paper No. RHS 06-029 Available at SSRN: http://ssrn.com/abstract=899100
- David Kuo dot.bomb: My Days and Nights at an Internet Goliath ISBN 0-316-60005-9 (2001)
See also
Terminology
Media
Venture Capital
- List of venture capital firms
External links
- Top 10 dot-com flops - CNet's list of ten most notable failed dot-com companies
- Silicon Follies (ISBN 0-7434-1121-8) - Dot-com lifestyles
- Startup Dot Com Movie - documentary of a failing company.
- Second Dot-Com Boom On Its Way? - 6 years on, are we heading for another Internet boom or bust?
- The Bubbles Impact on Software - How did the bubble impact the quality of Software?
- Every Generation has its Crash - MarketThoughts' email on February 14, 2000 warning of an impending crash in the NASDAQ
The "
dot-com bubble" was a
economic bubble covering roughly 1995–2001 (with a climax in 2000) during which
stock markets in
Western world saw their value increase rapidly from growth in the new quaternary sector of industry and related fields. The period was marked by the founding (and, in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as
Dot-com company. A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available
venture capital created an Irrational exuberance in which many of these businesses dismissed standard
business models, focusing on increasing
market share at the expense of the bottom line. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy
early 2000s recession in the developed world.
The bubble builds
The venture capitalists saw record-setting rises in stock valuation of these and other similar companies, and therefore moved faster and with less caution than usual, choosing to hedge the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998–99 helped increase the start-up capital amounts. Although a number of these new
entrepreneurs had realistic plans and administrative ability, most of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot-com concept.
A canonical "dot-com" company's
business model relied on harnessing network effects by operating at a sustained net loss to build market share (or
mind share). These companies expected that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.{{cite book] and especially
initial public offerings of stock to pay their expenses. The novelty of these stocks, combined with the difficulty of valuing the companies, sent many stocks to dizzying heights and made the initial controllers of the company wildly rich on paper.
An annual event started in
1995, the Webby Awards, working to recognize the best websites on the Internet. The event was typically an extravaganza held annually in San Francisco, California, near the heart of Silicon Valley. The ceremonies mirrored the flashy dot-com lifestyle with costumed guests, modern dancers, and faux-paparazzi to make guests feel important. The event peaked in 2001 with thousands in attendance. In 2002 it was a more somber event with only several hundred guests and little of the excess of the late 1990s. In 2003 the awards were reduced to a virtual event because many of the nominees could not fly to San Francisco due primarily to corporate belt-tightening and fear of losing their jobs. The 2005 and 2006 editions were held in New York City.
Historically, the dot-com boom can be seen as similar to a number of other technology-inspired booms of the past including Railway mania in the 1840s, automobiles and
radio in the 1920s,
transistor in the 1950s, computer time-sharing in the
1960s, and
home computers and
biotechnology in the early 1980s.
Soaring stocks
In financial markets a stock market bubble is a self-perpetuating rise or boom in the share prices of stocks of a particular industry. The term may be used with certainty only in retrospect when share prices have since crashed. A bubble occurs when speculators note the fast increase in value and decide to buy in anticipation of further rises, rather than because the shares are undervalued. Typically many companies thus become grossly overvalued. When the bubble "bursts", the share prices fall dramatically, and many companies go out of business.
The dot-com model was inherently flawed: a vast number of companies all had the same business plan of monopoly their respective sectors through network effects, and it was clear that even if the plan was sound, there could only be at most one network-effects winner in each sector, and therefore that most companies with this business plan would fail. In fact, many sectors could not support even one company powered entirely by network effects.
In spite of this, a few company founders made vast fortunes when their companies were bought out at an early stage in the dot-com stock market bubble. These early successes made the bubble even more buoyant. An unprecedented amount of personal investing occurred during the boom, and the press reported the phenomenon of people quitting their jobs to become full-time
day trading.{{cite web|first=Ray|last=Johns|title=Daytrader Trend|work=Online Newshour: Forum|publisher=PBS|date=1999-03-04|url=http://www.pbs.org/newshour/forum/february99/daytraders.html|accessdate=2007-10-09-->{{cite web|first=Robert X.|last=Cringely|authorlink=Robert X. Cringely|title=There's a Sucker Born Every 60,000 Milliseconds|work=I, Cringely|publisher=PBS|date=1999-12-16|url=http://www.pbs.org/cringely/pulpit/1999/pulpit_19991216_000634.html|accessdate=2007-10-09-->
Free spending
According to dot-com theory, an internet company's survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. The phrase "Get large or get lost" was the wisdom of the day. At the height of the boom, it was possible for a promising dot-com to make an
initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit - or, in some cases, even any revenues. In such a situation, a company's lifespan was measured by its
burn rate; that is, the rate at which a non-profitable company lacking a viable business model runs through its capital served as the measuring stick.
Public awareness campaigns were one way that dot-coms sought to grow their customer base. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with
onomatopoeia nonsense words that they hoped would be memorable and not easily confused with a competitor.
Super Bowl XXXIV in January 2000 featured seventeen dot-com companies that each paid over two million dollars for a thirty-second spot. By contrast, in January 2001, just
three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed
IWon gave away ten million dollars to a lucky contestant on an 15 April, 2000, half-hour primetime special that was broadcast on CBS.
Not surprisingly, the "growth over profits" mentality and the aura of "new economy" invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with
stock options in lieu of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.
Cities all over the United States sought to become the "next Silicon Valley" by building network-enabled office space to attract internet entrepreneurs. Communication providers, convinced that the future economy would require ubiquitous broadband access, went deeply into debt to improve their networks with high-speed equipment and
fiber optic cables. Companies that produced network equipment, such as
Cisco Systems, profited greatly from these projects.
Similarly, in
Europe the vast amounts of cash the Mobile phone operators spent on
3G-licences in Germany, Italy, and the United Kingdom, for example, led them into deep debt. The investments were blown out of proportion regardless of whether seen in the context of their current or projected future cash flow, but this fact was not publicly acknowledged until as late as 2001 and 2002 . Due to the highly networked nature of the
Information technology (information-technology) industry, this quickly led to problems for small companies dependent on contracts from operators.
Thinning the herd
index peaked in March 2000, reflecting the high point of the dot-com bubble.Over 1999 and early 2000, the Federal Reserve had increased interest rates six times, and the runaway economy was beginning to lose speed. The
dot-com bubble burst, numerically, on March 10, 2000, when the technology heavy NASDAQ Composite index peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before. The NASDAQ fell slightly after that, but this was attributed to correction by most market analysts; the actual reversal and subsequent
bear market may have been triggered by the adverse findings of fact in the
United States v. Microsoft case which was being heard in United States federal courts. The findings, which declared
Microsoft a
monopoly, were widely expected in the weeks before their release on
April 3.
One possible cause for the collapse of the NASDAQ (and all dotcoms) were massive, multi-billion dollar sell orders for major bellwether high tech stocks (Cisco Systems,
IBM, Dell, etc.) that happened by chance to be processed simultaneously on the Monday morning following the March 10 weekend. This selling resulted in the NASDAQ opening roughly four percentage points lower on Monday March 13 from 5038 to 4,879-the greatest percentage 'pre-market' selloff for the entire year.
The massive initial batch of sell orders processed on Monday,
March 13 triggered a chain reaction of selling that fed on itself as investors, funds, and institutions liquidated positions. In just three days the NASDAQ had lost nearly nine percent, falling from roughly 5050 on March 10 to 4580 on
March 15.
Another reason may have been accelerated business spending in preparation for the Year 2000 problem switchover. Once New Year had passed without incident, businesses found themselves with all the equipment they needed for some time, and business spending quickly declined. This correlates quite closely to the peak of U.S. stock markets. The
Dow Jones Industrial Average peaked on January 14,
2000 (closed at 11,722.98, with an intra-day peak of 11,750.28 and theoretical peak of 11,908.50) and the broader
S&P 500 on March 24, 2000 (closed at 1,527.46, with an intra-day peak of 1,553.11); while, even more dramatically the UK's
FTSE 100 Index peaked at 6,950.60 on the last day of trading in
1999 (December 30). Hiring freezes, layoffs, and consolidations followed in several industries, especially in the dot-com sector.
The bursting of the bubble may also have been related to the poor results of internet retailers following the 1999 Christmas season. This was the first unequivocal and public evidence that the "Get Big Fast" internet strategy was flawed for most companies. These retailers' results were made public in March when annual and quarterly reports of public firms were released.
By 2001 the bubble's deflation was running full speed. A majority of the dot-coms ceased trading after burning through their
venture capital, often without ever making a net
profit. Investors often jokingly referred to these failed dot-coms as either "dot-bombs" or "dot-compost".
Aftermath
On January 11, 2000,
America Online, a favorite of dot-com investors and pioneer of dial-up internet access, acquired Time Warner, the world's largest media company. Within two years, boardroom disagreements drove out both of the chief executive officers who made the deal, and in October
2003 AOL Time Warner dropped "AOL" from its name. The acquisition thus became a symbol of the dot-coms' challenge to "old economy" companies and the old economy's ultimate survival. The revolutionary optimism of the boom faded, and analysts once again recognized the relevance of traditional business thinking.
Several communication companies, burdened with unredeemable debts from their expansion projects, sold their assets for cash or filed for
bankruptcy.
WorldCom, the largest of these, was found to have used
accounting scandals to overstate its profits by billions of dollars. The company's stock crashed when these irregularities were revealed, and within days it filed the largest corporate bankruptcy in U.S. history. Other examples include NorthPoint Communications, Global Crossing,
JDS Uniphase, XO Communications, and
Covad Communications. Demand for the new high-speed infrastructure never materialized, and it became
dark fiber. Some analysts believe that there is so much dark fiber worldwide that only a small percentage of it will be "lit" in the decades to come.
Many dot-coms ran out of capital and were acquired or
liquidation; the domain names were picked up by old-economy competitors or domain name investors. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like
Citigroup and
Merrill Lynch millions of dollars for misleading investors. Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as
Amazon.com and
eBay, survived the turmoil and appear to have a good chance of long-term survival.
Recent research suggests, however, that as much as 50% of dot-coms survived through 2004, reflecting two facts: the destruction of public market wealth did not necessarily correspond to firm closings, and second, that most of the dot-coms were small players who were able to weather the financial markets storm.
Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. In the U.S.,
Offshoring and the recently allowed increase of skilled visa "guest workers" (e.g., those participating in the U.S.
H-1B visa program) exacerbated the situation. University degree programs for computer-related careers saw a noticeable drop in new students. Anecdotes of unemployed programmers going back to school to become accountants or lawyers were common.
Some believe the crash of the dot-com bubble contributed to the United States housing bubble in the U.S.. Yale economist Robert Shiller said in 2005, "Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors. These days, the only thing that comes close to real estate as a national obsession is
poker" (from
Barron's Magazine's article " The Bubble's New Home", 20 June 2005).
In September 2005,
The Economist referred to discussion of "
Web 2.0", accompanied by rumors that
Microsoft was considering buying America Online (AOL), as "Bubble 2.0".
In 2006, some speculated that a new dot-com bubble might be at hand, citing the acquisition of Intermix Media (owner of
MySpace) by News Corporation,
Skype by eBay and
YouTube by
Google as well as the possible acquisition of
Facebook by Yahoo!
List of companies significant to the bubble
For discussion and a list of dot-com companies outside the scope of the dot-com bubble, see Dot-com company.
- About.com
- Alcatel (France)
- Altavista
- Ameritrade, now TD Ameritrade
- Angelfire, established in 1995, later purchased by Lycos
- AOL
- Amazon.com
- Boo.com, now owned by Fashionmall.com
- CDNOW, now owned by Amazon.com
- Cisco Systems, the most prominent network equipment manufacturer at the time
- CMGI
- CNET
- DoubleClick
- eBay
- e.Digital (EDIG) - Obscure OTC-traded company that experienced a brief 35,000% internet message board fueled increase in its share price.
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- Enron, through EnronOnline
- eToys.com
- E*TRADE
- Excite, purchased by the ISP @Home Networks on January 19, 1999 for $6.7 billion and changed the name to Excite@Home Networks
- France Telecom
- Freeinternet, the fifth largest Internet service provider, famous for its mascot "Baby Bob"; went bankrupt in 2000; Baby Bob was later sold to Quiznos Sub
- GeoCities, purchased by Yahoo! for $3.57 billion in January 1999
- govWorks, the doomed dot-com featured in the documentary film Startup.com
- Hotmail
- Internet Capital Group
- InfoSpace (Ticker INSP) - In October 1999, this stock was priced at $96.88. In March of 2000, it had reached $1385.00 per share, only in time to crash down to $20.00 per share one year later.
- Kozmo.com, shut down in April 2001, featured in the documentary film e-Dreams
- Kibu, shut down in October 2000
- Lycos, founded in 1995, bought by Terra Networks in 2000 for $12.5 billion, then sold to Daum Communications in 2004 for $95 million
- mortgage.com, formerly 1st Mortgage Network spun off Mortgage Systems International (MSI). ABN Amro Mortgage Group purchased the URL, and moved National Lending Center from Ann Arbor Michigan to take over the lease in the "White Elephant" building in Sunrise Florida. ABN Amro Mortgage Group has been since purchased by CitiMortgage Group in March 2007.
- Netscape
- Network Solutions, the key domain name registrar for WWW names at the time
- PayPal, now a subsidiary of eBay
- Pets.com
- Priceline.com
- Sun Microsystems, a contributor to internet technologies; used the corporate slogan "We Put The Dot In Dot Com"
- Telefonica (Spain)
- Thawte, purchased by VeriSign for $575 million in 1999
- theGlobe.com, set a record for one-day share price gain (606%) on its IPO, hitting $97; shares now trade for less than a nickel
- Travelocity
- Tripod.com
- VeriSign, which went from a high of $258.50 in March of 2000 to a low of $65.38 in December of 2000
- Webvan, went bankrupt in 2001
- WorldCom, at one time controlled a majority of US Internet backbone, through acquistion of UUNet and MCI Inc.; acquired by Verizon after financial scandal
- Yahoo!
References
Further reading
- Cassidy, John. Dot.con: How America Lost its Mind and Its Money in the Internet Era (2002)
- Daisey, Mike. 21 Dog Years Free Press. ISBN 0-7432-2580-5.
- Kindleberger, Charles P., Manias, Panics, and Crashes: A History of Financial Crises (Wiley, 2005, 5th edition)
- Goldfarb, Brent D., Kirsch, David and Miller, David A., "Was There Too Little Entry During the Dot Com Era?" (April 24, 2006). Robert H. Smith School Research Paper No. RHS 06-029 Available at SSRN: http://ssrn.com/abstract=899100
- David Kuo dot.bomb: My Days and Nights at an Internet Goliath ISBN 0-316-60005-9 (2001)
See also
Terminology
Media
Venture Capital
- List of venture capital firms
External links
- Top 10 dot-com flops - CNet's list of ten most notable failed dot-com companies
- Silicon Follies (ISBN 0-7434-1121-8) - Dot-com lifestyles
- Startup Dot Com Movie - documentary of a failing company.
- Second Dot-Com Boom On Its Way? - 6 years on, are we heading for another Internet boom or bust?
- The Bubbles Impact on Software - How did the bubble impact the quality of Software?
- Every Generation has its Crash - MarketThoughts' email on February 14, 2000 warning of an impending crash in the NASDAQ
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