The dot-com bubble also known as the dot-com boom , the tech bubble, the Internet bubble , the dot-com collapse , and the information technology bubble  was a historic economic bubble and period of excessive speculation that occurred roughly from to , a period of extreme growth in the usage and adaptation of the Internet by businesses and consumers.
During this period, many Internet -based companies, commonly referred to as dot-coms , were founded, many of which failed. During —, the bubble collapsed. Some companies, such as Pets. The commercial growth of the internet was sparked by the advent of the World Wide Web and then the release of the Mosaic web browser in The shift to an economy based on computerization is known as the Information Age. As a result of the rapidly-increasing usage of the Internet , many investors were eager to invest, at any valuation, in any company that had one of the Internet-related prefixes or a ".
A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, speculation in stocks by individuals, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics, such as the price—earnings ratio , in favor of basing confidence on technological advancements.
The low interest rates of —99 helped increase the availability of funding. An unprecedented amount of personal investing occurred during the boom, and the press reported the phenomenon of people quitting their jobs to engage in full-time day trading. At the height of the boom, it was possible for a promising dot-com company to become a public company via an initial public offering and raise a substantial amount of money even though it had never made a profit—or, in some cases, realized any material revenue whatsoever.
American news media, including respected business publications such as Forbes and the Wall Street Journal , took advantage of the public's desire to invest in the stock market; an article in the Wall Street Journal suggested that investors "re-think" the "quaint idea" of profits and CNBC reported on the stock market with the same level of suspense as many networks provided to the broadcasting of sports events.
Academics Preston Teeter and Jorgen Sandberg have criticized Federal Reserve chairman Alan Greenspan for his role in the promotion and rise in tech stocks.
Here's Why The Dot Com Bubble Began And Why It Popped - Business Insider
Author Andrew Smith argued that the financial industry's handling of initial public offerings tended to benefit the banks and initial investors rather than the companies. However, the investment bankers and other initial investors were typically entitled to sell their shares on the first day of trading and lock in huge profits literally overnight.
Smith argues that the high profitability of the IPOs to Wall Street was a significant factor in the course of events of the bubble. However, executives and employees who received employee stock options became instant paper millionaires when their company made its initial public offering. Several company executives, such as Mark Cuban , made vast fortunes when their companies were bought out at an early stage in the dot-com stock market bubble; the most successful sold for cash or entered into hedging transactions on shares they received.
Most dot-com companies operated at a net loss to harness network effects to build market share or mind share as fast as possible, using the mottos "get big fast" and "get large or get lost". These companies offered their services or products for free or at a discount with the expectation that they could build enough brand awareness to charge profitable rates for their services in the future.
Technology companies sought to expand public awareness and their customer bases via massive advertising campaigns. Many dot-coms named themselves with onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. 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.
Upon the launch of a new product or website, a company would organize an expensive event called a dot com party. Telecommunications equipment 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.
In the struggle to become a technology hub, many cities and states used tax money to fund technology conference centers, advanced infrastructure, and created favorable business and tax law to encourage development of the dotcom industry in their locale. Virginia's Dulles Technology Corridor along I is a prime example of this activity. Large quantities of high-speed fiber links were laid, and the State and local governments gave tax exemptions to technology firms.
Office vacancy increased significantly after the bubble burst, although the area still remains a major technology hub. On January 10, , America Online , a favorite of dot-com investors and pioneer of dial-up Internet access , announced plans to merge with Time Warner , the world's largest media company, in the largest merger in history at that time.
On March 10, , the NASDAQ Composite peaked at 5, After venture capital was no longer available, the operational mentality of executives and investors completely changed. A money-losing company's lifespan was measured by its burn rate , the rate at which a non-profitable company lacking a viable business model spent its existing capital. Many dot-coms ran out of capital and were acquired or went through liquidation ; the domain names were purchased by old-economy competitors, speculators or cybersquatters.
Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U. Securities and Exchange Commission fined top investment firms including 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. Several companies that produced network equipment were irrevocably damaged by the debt taken on to fund their expansion and went bankrupt, causing what is known as the telecoms crash. However, some communications companies that supplied equipment and outsourced manufacturing, such as Cisco and Qualcomm, were able to survive.
Similarly, in Europe, mobile phone companies overspent on 3G licences, which led them deep into debt and led to the telecoms crash. The investments in infrastructure were far out of proportion to both their current and projected cash flow.
WorldCom , led by Bernard Ebbers , was the subject of accounting scandals. WorldCom's stock price fell drastically when the accounting scandal was publicized, and, in July , it filed the largest corporate bankruptcy ever at the time. The September 11 attacks accelerated the stock market drop; the NYSE suspended trading for four sessions.
When trading resumed, some of it was transacted in temporary new locations. Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market.
University degree programs for computer-related careers saw a noticeable drop in new students. Failed startups liquidated all of their equipment such as Herman Miller Aeron Chairs and computer equipment.
On the long-term legacy of the bubble, venture capitalist Fred Wilson , who funded dot-com companies, said about the dot-com bubble:.
He says 'Nothing important has ever been built without irrational exuberance '.
Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever. And in this case, much of the capital invested was lost, but also much of it was invested in a very high throughput backbone for the Internet, and lots of software that works, and databases and server structure.
All that stuff has allowed what we have today, which has changed all our lives As growth in the information technology sector stabilized, several companies consolidated, gained market share, and came to dominate their respective fields. A few large dot-com companies, such as Amazon.
The information technology industry came to more closely resemble other traditional sectors of the economy, albeit with still a faster growth rate and higher valuations than other sectors. There are now many information technology companies ranked at the top of the Fortune list of the largest companies by revenues.
From Wikipedia, the free encyclopedia. Internet portal Economics portal s portal s portal. Galbraith and Travis Hale Income Distribution and the Information Technology Bubble.
A List Of U. It's a Brutal World". Extraordinary Winners and More Losers".
History of the Dot-Com Bubble Burst and How to Avoid Another
Origins of the Crash: The Great Bubble and Its Undoing. On the Trail of the Great Dotcom Swindle. Dot-Coms Re-Evaluate Ad Spending Habits". For Some, Cash Is Everything And Only Thing". Silicon Valley High-Tech Employment And Wages in and ". Bureau of Labor Statistics. From Hot to Scorched at Commerce One". How InfoSpace took its investors for a ride". Earth To Dot Com Accountants". The Quarterly Review of Economics and Finance.
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