Dot-com Bubble

August 3


Rise and Fall of The Internet


TOC o “1-3” h z u INTRODUCTION PAGEREF _Toc394850380 h 3INTERNET BUBBLE HISTORY: A SAGA FROM BEGINNING TO END PAGEREF _Toc394850381 h 3World Wide Web: At a Glance PAGEREF _Toc394850382 h 3Dot-com Bubble PAGEREF _Toc394850383 h 4The Bubble Growth: PAGEREF _Toc394850384 h 51. Spending Lavishly: PAGEREF _Toc394850385 h 52. Rising Stocks: PAGEREF _Toc394850386 h 6The Bubble Bust: PAGEREF _Toc394850387 h 6Companies That Lost In Dot-com Bubble PAGEREF _Toc394850388 h 7 PAGEREF _Toc394850389 h 7 PAGEREF _Toc394850390 h 8 PAGEREF _Toc394850391 h 8InfoSpace PAGEREF _Toc394850392 h 8GeoCities PAGEREF _Toc394850393 h 8Companies That Survived the Dot-com Bubble: PAGEREF _Toc394850394 h 8 PAGEREF _Toc394850395 h 8Shutterfly PAGEREF _Toc394850396 h 9eBay PAGEREF _Toc394850397 h 9 (privately held) PAGEREF _Toc394850398 h 9The Aftermath PAGEREF _Toc394850399 h 9SUMMARY AND CONCLUSION PAGEREF _Toc394850400 h 10REFERENCES PAGEREF _Toc394850401 h 11

INTRODUCTIONThe rise of the internet has led to many technological changes in the present world and what marked the rise of the internet was the advent of the World Wide Web in the year 1993 when a man named Tim Berners Lee invented World Wide Web. With this invention came the era in which the online industry boomed like never before. The investors all around the world found the internet and World Wide Web as the new future for gaining profit and then began huge amounts of investing in newly launched internet companies from 1993 to 2000. This period is known as the World Wide Web bubble or the dot-com bubble. The history of this bubble is an important source to know how it all began and how many companies rose and perished in the due course to reach what we have today. The readers of this paper will get insights into the history of the bubble and how it affected the internet arena. This research paper will lead to identify various events of that time and what could have been done to avoid the failures that many companies faced.

INTERNET BUBBLE HISTORY: A SAGA FROM BEGINNING TO ENDWorld Wide Web: At a GlanceBy the early 1990’s computers were already in use for various purposes and at various places like offices, homes and schools. But they were mainly used for playing games, writing, accounting and business applications. Computers were rarely used for shopping, communicating or research as today. A man named Tim Berners-Lee in 1993, a software engineer at CERN in physics laboratory near Geneva, Switzerland changed the whole concept of computer usage by introducing a multimedia layer to the internet called World Wide Web (www).

World Wide Web is often misunderstood for internet but is actually different from internet. World Wide Web is a kind of service which operates over the internet like e-mail (Craig, 2003). It’s a global space where people can connect with each other all across the globe, can share information and can read and write through computers connected to the internet. Internet is a series of computer networks through which computers connect and communicate with each other globally. A series of different languages with the help of which information is shared between computers are called protocols. World Wide Web is a kind of layer over the internet and it uses three protocols:

HTML (Hypertext markup language)

HTTP (Hypertext Transfer Protocol)

URLS (Uniform resource locator).

Dot-com BubbleBubble is a term given to a sudden rise of stock prices of an industry for a certain period of time due to various direct and indirect factors. The buying of stocks in the time of a bubble rapidly increases as there is a potential of huge profits due to future rise in the stock prices. Consumers buy these stocks at a very high price under the belief that another consumer will buy from them at still greater price than that. Eventually such markets run out. Similar thing happened with the World Wide Web market in the period of 1995-2001 and has been categorically defined as “dot-com bubble”.

With the evolution of a novel idea of World Wide Web with high potential, web became a focus of the businesses. There was a sudden rise of economy and high growth rates in the internet sector. Investors found it a completely new and untapped market and companies who had never ever made revenues were pushed on to stock exchange and started investing at extremely high values. Already existing businesses realized the need of their visibility/presence on the internet to conduct marketing and for sharing information. Online business became a hot topic and led many entrepreneurs to pop up and take advantage of the e-commerce possibilities. Young and underemployed individuals realized that business models in future would be based on e-commerce possibilities so they wanted to be the first to benefit from this .They came to be known as start- ups. The investors started putting money into whatever was related to the web or .com due to the wrong judgment of low costs of conducting businesses in this new arena. Further interest rates were very low in 1998-1999 which helped the start-up capital amounts to increase. They overlooked the basic fundamentals and real world; instead they started making huge investments in the hope of reaping benefits in the long run with the confidence of advancements in technology. Among the start- ups of the dot-com bubble, most popular were Monster, Amazon, HotJobs, eToys, eBay, and WebMD.

The startups began to increase in number and the investors started investing in such start-ups that didn’t even have a clear business plan. Huge expenditures were on advertisement, offices and marketing. Then came the time when the artificial accounts were set up on papers to show the profits earned by the investors which further boomed the bubble. The buzz around was of only one thing “Get big quickly or get out”.

The Bubble Growth:The growth of the bubble depended on the following aspects:

1. Spending Lavishly:An internet company can survive and grow only if there is rapid expansion of its customers else it is bound to get doomed. Most of the companies which invested in the dot-com bubble era spent huge amounts internally also. Some employees of such companies became millionaires due to such high rise in stock prices. Moreover, these companies spent lavishly in expanding their business facilities because confidence in the “new growing economy” was very high. The internet service providers and the mobile network operators saw it as an opportunity to invest to develop their network infrastructure so as to cope up with the future rise of internet. This led to the companies in taking huge amounts of loans and was in high debts for the advancement in technology.

2. Rising Stocks:During the period of dot-com bubble, the stocks were rising at a rapid pace and the stock markets were on the high that has never been seen before. All around the world companies started investing in the ventures of World Wide Web and the internet. Every company that entered into the arena of World Wide Web saw huge increase in their stock prices just in a week from the launch of their IPO’s. Every new company or as they are called as start-ups were craving to benefit more and more from this boom, even more investing was done which further increased the stock prices. Even if the companies were not having much profit the boom made it as a potential profit maker in the future. This led to the further bubble expansion and in no time it was advent that the bubble is reaching its ultimate peak.

The Bubble Bust:The dot-com bubble reached the maximum height in January 2000 Super Bowl, when almost 20 dot-com companies paid more than $2 million each for the prime advertising spots. Thus the concept of the “New Economy” was a complete hit till the “” bubble busted in early 2000. Every bubble reaches a time when it busts and for the dot-com bubble the fate was sealed officially in the year 2000 on March 10th. On this day NASDAQ (The internet stock exchange) reached its peak of all time to 5,048.62 which was a huge rise of almost double the value that it had on the same date of previous year (Doms, 2004). After this peak followed the downfall, the NASDAQ started falling rapidly and by the end of 2002 it fall to one fifth of the peak value of year 2000. The fall was not due to one reason but a combination of reasons that led the stock prices to fall below any expectations. As on 10th March, 2002 the NASDAQ reached its peak, the selling orders for the stock increased rapidly and increased that much that it started feeding on itself and the stock prices started getting down and at the end of the day of 10th march the value came down by 200 points and kept decreasing. (Kraay & Ventura, 2007). Another point that can be accounted is that after spending so much for all these years in equipping with the technology, companies felt that no more spending is required and hence, investors stopped further funding and sat back to reap the fruit. Another reason was the increase of interest rates almost six times the prevalent rate of interest by the Federal Reserve. On April 3rd, 2000 in the case of United States v/s Microsoft Federal Court declared Microsoft as a Monopoly which spread the news all around the world that the future of their stocks are on stake and due to this NASDAQ fell from 4,283 points to a low of 3,649 points on April 4th. The NASDAQ rebounded for a while though but it was not near any recovery. It kept on falling and the investors realized the companies they have invested in are now loss making companies and soon those companies became bankrupt creating chaos in the World Wide Web arena.

Companies That Lost In Dot-com – It has become synonymous with the dot-com bust. The pet company of food and supplies is perhaps the most recognized flop from the bubble due to its popular marketing campaign. In the first nine months of 2000, the company lost $147 million (Ofek, Richardson, 2003). It failed to secure more cash from investors. In February 2000, when went public its stock started at $11 a share and rose to $14. But the stock of fell quickly below $1 and stayed there until its demise. The company of about 3000 employees winded up in November 2000. – was another company that lost its everything in the bubble. Investment of $1 billion was all in vain. With initial profits the companies stocks at the end fell to 6 cents a share. – This online toy retailer was founded in 1997 and soon became one of the most visited Web sites for holiday shopping. It spent millions of dollars on campaigns of marketing. But, it had not enough cash by March 31, 2000. It later itself filed for bankruptcy.

InfoSpace – Another company who saw immense rise in its share with the peak price of $1,305 per share in March, 2000 to even bigger a fall to just $22 a share in one year. In March 2000, its stock reached at a height of $1,305 per share, but by April 2001 the price had crashed down to $22 a share. (Goodnight & Green, 2010).

GeoCities – There were 19 million unique visitors per month on this site and it soon became the third-most visited site on the Web behind AOL and Yahoo in 1998. Yahoo bought GeoCities for $3.6 billion in January 199. But, with the advent of Facebook, Myspace, GeoCitie, Gotl ost. GeoCities was closed by Yahoo on Oct. 26.

Apart from above, other sites which became victims to the dot-com bubble bust were,,,,,,,,, etc.

Companies That Survived the Dot-com – that is still one of the topmost companies in the world was one of the biggest survivors of the dot-com bubble. Founded by Jeff Bezos in 1994, Amazon is the largest online retailer company in the world today (McAleer, Suen & Wong, 2013). The Amazon had a sure shot business plan and focused on the recognition of its brand rather than income. Till 2002 it had no significant profit but after that it rose to heights that surpassed all.

Shutterfly – It was founded in 1999. It allows users to create cards, prints, photo books, calendars, stationery and photo sharing websites. Today it trades its shares above $500. – It was founded in 1998. It is related to travel and it helps users to find discount rates on hotels, fares, car rentals and vacation packages.

eBay – Another online Giant eBay was one of the survivors of the dot-com bubble. Founded by Pierre Omidyar in 1995 its business plan revolutionized the online retailing. Today the company has a business of more than $9 billion and still rising with its employee base of 17,000 employees all over the world. (privately held) – It was founded by Steve Boal in 1998. Today, its value is of $1 billion.

The AftermathThe dot-com bubble kept on deflating at a rapid pace till the year 2001 and the companies that lost everything in the bubble were either bankrupt or were liquidated quickly. The companies burned their venture capitals and then ceased their trading. The domain names were swapped by various competitors of the loosing firms. There were various companies that were charged for fraud and taken down by the Federal Court and fines of millions of dollars were imposed on them for misleading the investors (Mills, 2003). There were companies who never made even a little profit and lost a fortune and there were some companies who survived and now emerged as the largest .com companies that the world has ever seen. The bubble can be marked as the litmus test for the companies for success. The ones who passed this test are successful beyond expectations and the ones who failed no more exist and are lost in the sands of time.

SUMMARY AND CONCLUSIONThe dot-com bubble was the biggest turmoil in the history of the internet and the World Wide Web and has given the companies a lesson that without a perfect business plan failure in the bubble is inevitable. A few .com companies like Google, Amazon, eBay etc. managed to survive the bubble with their nicely executed plans and less greed for initial profits. With the end of the bubble bust arose a new era of internet where internet went to half of the household in the USA and many parts of the world. The internet bubble was something that in a way opened the path for the Information Technology Boom and the world that we live in today. Without the bubble the world might not have seen such a rapid change in the technology that we are experiencing today. There could have been a number of ways that this large amount of failures could have been avoided. One way could have been by creating business plans that were actually profit making and not the plans to just enter the arena. The other way could have been not to invest blindly in any company with a World Wide Web tag or the .com tag. But, it can only be argued or discussed what should have been done and what was done had the consequences for some companies and a few of them are having a future brighter than sun.

REFERENCESKraay, A., & Ventura, J. (2007). The dot-com bubble, the Bush deficits, and the US current account.University Of Chicago Press, 457–496.Goodnight, G., & Green, S. (2010). Rhetoric, risk, and markets: The dot-com bubble. Quarterly Journal Of Speech, 96(2), 115–140.

Craig, B. (2003). Bubble, toil, and trouble. Federal Reserve Bank Of Cleveland.

 Doms, M. (2004). The Boom and the Bust in Information Technology Investment. ECONOMIC REVIEW-FEDERAL RESERVE BANK OF SAN FRANCISCO, 19–34.Ofek, Richardson (2003), “DotComMania: The Rise and Fall of Internet Stock Prices”, retrieved from, M., Suen, J., & Wong, W. (2013). Profiteering from the Dot-com Bubble, Sub-Prime Crisis and Asian Financial Crisis.

Mills (2001), “Who’s to Blame for the Bubble?”, retrieved from

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