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The "dot-com bubble" (or sometimes the "I. T. bubble") was a speculative bubble covering roughly 1995–2001 (with a climax on March 10th, 2000 with the NASDAQ peaking at 5132. An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative Year 1995 ( MCMXCV) was a Common year starting on Sunday. Events of 1995 Year 2001 ( MMI) was a Common year starting on Monday according to the Gregorian calendar. Events 241 BC - First Punic War: Battle of the Aegates Islands - The Romans sink the Carthaginian fleet bringing 2000 ( MM) was a Leap year that started on Saturday of the Common Era, in accordance with the Gregorian calendar. The NASDAQ (acronym of National Association of Securities Dealers Automated Quotations) is an American Stock exchange. 52) during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. A stock market, or (equity market is a private or public market for the trading of company Stock and derivatives of company The term Western world, the West or the Occident ( Latin: occidens -sunset -west as distinct from the Orient) can have multiple meanings 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-coms. The Internet is a global system of interconnected Computer networks A Dot-com company, or simply a dot-com, is a company that does most of its business on the Internet, usually through a Website that uses the popular A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line. Speculation, in a financial context is making an investment that increases the overall risk in a portfolio Venture capital (also known as VC or Venture) is a type of Private equity capital typically provided to immature high-potential growth companies For other uses of the term Irrational exuberance, see the Irrational exuberance (disambiguation article A business model is a term used for a broad range of informal and formal descriptions that are used by enterprises to represent various aspects of its business including its purpose offerings Market share, in Strategic management and Marketing, is the percentage or proportion of the total available Market or Market segment that is Net income is equal to the Income that a firm has after subtracting costs and Expenses from the total Revenue. 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 Early 2000s Recession was felt in mostly Western countries affecting the European Union mostly during 2000 and 2001 and the United States mostly in

Contents

The growth of the bubble

The venture capitalists saw record-setting rises in stock valuations of dot-com companies, and therefore moved faster and with less caution than usual, choosing to mitigate the risk by starting many contenders and letting the market decide which would succeed. A Dot-com company, or simply a dot-com, is a company that does most of its business on the Internet, usually through a Website that uses the popular 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. An entrepreneur is a person who has possession over a company enterprise, or Venture, and assumes significant accountability for the inherent risks and the outcome

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). A business model is a term used for a broad range of informal and formal descriptions that are used by enterprises to represent various aspects of its business including its purpose offerings In Economics and Business, a network effect (also called network externality) is the effect that one user of a good or service has Market share, in Strategic management and Marketing, is the percentage or proportion of the total available Market or Market segment that is Mind share, or the development of consumer awareness or popularity is one of the main objectives of Advertising and Promotion. 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. [1] During the loss period the companies relied on venture capital and especially initial public offerings of stock to pay their expenses. Venture capital (also known as VC or Venture) is a type of Private equity capital typically provided to immature high-potential growth companies Initial public offering (IPO, also referred to simply as a "public offering" is when a company issues Common stock or shares to the public for the first 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.

Historically, the dot-com boom can be seen as similar to a number of other technology-inspired booms of the past including railroads in the 1840s, automobiles and radio in the 1920s, transistor electronics in the 1950s, computer time-sharing in the 1960s, and home computers and biotechnology in the early 1980s. In Electronics, a transistor is a Semiconductor device commonly used to amplify or switch electronic signals Time-sharing refers to sharing a computing resource among many users by multitasking. A home computer was a class of Personal computer entering the market in 1977 and becoming common during the 1980s Biotechnology is Technology based on Biology, especially when used in Agriculture, Food science, and Medicine.

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. A stock market bubble is a type of Economic bubble taking place in Stock markets when price of Stocks rise and become overvalued by any measure of Stock 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 monopolizing 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 Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient 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 traders. Day trading refers to the practice of buying and selling Financial instruments within the same trading day such that all positions are usually closed before the market close [2][3][4]

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. [1] 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, earned any revenue whatsoever. Initial public offering (IPO, also referred to simply as a "public offering" is when a company issues Common stock or shares to the public for the first 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 ran through its capital served as the measuring stick. Burn rate is a synonymous term for negative Cash flow. It is a measure for how fast a company will use up its shareholder capital A business model is a term used for a broad range of informal and formal descriptions that are used by enterprises to represent various aspects of its business including its purpose offerings

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 onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. Onomatopoeia (also spelled onomatopœia, from Greek: ονοματοποιΐα is a Word or a grouping of words that imitates the sound it is describing Super Bowl XXXIV in January 2000 featured seventeen dot-com companies that each paid over two million dollars for a thirty-second spot. Super Bowl XXXIV featured the National Football Conference (NFC champion St January 2000: &larr - January - February - March - April - May - June - July - By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. January 2001: ← - January - February - March - April - May - June - July - August Super Bowl XXXV was an American football game played on January 28, 2001 at Raymond James Stadium in Tampa Florida to decide In a similar vein, CBS-backed iWon.com gave away ten million dollars to a lucky contestant on an April 15, 2000, half-hour primetime special that was broadcast on CBS. IWoncom is a free Casual game site and web portal that offers the chance to win cash and prizes through activities such as clicking through Events 1450 - Battle of Formigny: Toward the end of the Hundred Years' War, the French attack and nearly annihilate English 2000 ( MM) was a Leap year that started on Saturday of the Common Era, in accordance with the Gregorian calendar.

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. The New Economy was an evolution of developed countries from an industrial/manufacturing-based wealth producing economy into a Service sector Asset based economy 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. Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures

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. Broadband Internet access, often shortened to just Broadband, is high-speed Internet access—typically contrasted with dial-up access over a Modem An optical fiber (or fibre) is a Glass or Plastic fiber that carries Light along its length Companies that produced network equipment, such as Cisco Systems, profited greatly from these projects.

Similarly, in Europe the vast amounts of cash the mobile operators spent on 3G licences in Germany, Italy, and the United Kingdom, for example, led them into deep debt. 3G is the third generation of mobile phone standards and Technology, superseding 2 Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. Italy (Italia officially the Italian Republic, (Repubblica Italiana is located on the Italian Peninsula in Southern Europe, and on the two largest The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located The investments were far out of proportion to both their current and projected cash flow, but this was not publicly acknowledged until as late as 2001 and 2002. Cash flow (also called net cash flow) is the balance of the amounts of Cash being received and paid by a business during a defined period of time sometimes tied Due to the highly networked nature of the IT (information-technology) industry, this quickly led to problems for small companies dependent on contracts from operators. Information technology ( IT) as defined by the Information Technology Association of America (ITAA is "the study design development implementation support

Thinning the herd

The technology-heavy NASDAQ Composite index peaked at 5,048 in March 2000, reflecting the high point of the dot-com bubble.
The technology-heavy NASDAQ Composite index peaked at 5,048 in March 2000, reflecting the high point of the dot-com bubble. The Nasdaq Composite is a Stock market index of all of the Common stocks and similar securities (e

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[5] peaked at 5,048. Events 241 BC - First Punic War: Battle of the Aegates Islands - The Romans sink the Carthaginian fleet bringing 2000 ( MM) was a Leap year that started on Saturday of the Common Era, in accordance with the Gregorian calendar. The NASDAQ (acronym of National Association of Securities Dealers Automated Quotations) is an American Stock exchange. 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 federal court. In Investing, Financial markets are commonly believed to have market trends that can be classified as primary trends secondary trends (short-term and secular trends In Law, a question of fact (also known as a point of fact) is a question which must be answered by reference to facts and evidence, and inferences United States v Microsoft There were many civil actions taking place in May 18 1998 The United States federal courts are the system of Courts organized under the Constitution and laws of the Federal government of the United States The findings, which declared Microsoft a monopoly, were widely expected in the weeks before their release on April 3. Microsoft Corporation is an American multinational Computer technology Corporation, which rose to dominate the Home computer In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient Events 1043 - Edward the Confessor is crowned King of England.

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, IBM, Dell, etc. International Business Machines Corporation abbreviated IBM and nicknamed "Big Blue", is a multinational Computer Technology The multinational technology company Dell Inc develops manufactures sells and supports Personal computers and other computer-related products ) that happened by chance to be processed simultaneously on the Monday morning following the March 10 weekend. Events 241 BC - First Punic War: Battle of the Aegates Islands - The Romans sink the Carthaginian fleet bringing This selling resulted in the NASDAQ opening roughly four percentage points lower on Monday March 13 from 5,038 to 4,879—the greatest percentage 'pre-market' selloff for the entire year. Events 1138 - Cardinal Gregorio Conti is elected Antipope as Victor IV, succeeding Anacletus II.

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. Events 1138 - Cardinal Gregorio Conti is elected Antipope as Victor IV, succeeding Anacletus II. In just three days the NASDAQ had lost nearly nine percent, falling from roughly 5,050 on March 10 to 4,580 on March 15. Events 241 BC - First Punic War: Battle of the Aegates Islands - The Romans sink the Carthaginian fleet bringing Events 44 BC - Julius Caesar, Dictator of the Roman Republic, is stabbed to death by Marcus Junius Brutus,

Another reason may have been accelerated business spending in preparation for the Y2K switchover. The Year 2000 problem (also known as the Y2K problem, the millennium bug, the Y2K bug, or simply Y2K) was a notable Computer bug resulting 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 peaked on January 14, 2000 (closed at 11,722. The Dow Jones Industrial Average ( also called the DJIA, Dow 30, INDP, or informally the Dow Jones or The Dow) is one of several Events 1129 - Formal approval of the Order of the Templar at the Council of Troyes. 2000 ( MM) was a Leap year that started on Saturday of the Common Era, in accordance with the Gregorian calendar. 98, with an intra-day peak of 11,750. 28 and theoretical[6] peak of 11,908. 50)[7] and the broader S&P 500 on March 24, 2000 (closed at 1,527. The S&P 500 is a Stock market index containing the stocks of 500 Large-Cap Corporations all of which are from the United States. Events 1401 - Mongol emperor Timur sacks Damascus. 1603 - James VI of Scotland 2000 ( MM) was a Leap year that started on Saturday of the Common Era, in accordance with the Gregorian calendar. 46, with an intra-day peak of 1,553. 11);[8] while, even more dramatically the UK's FTSE 100 Index peaked at 6,950. The FTSE 100 Index (ˈfʊtsiː footsie, abbreviated Financial Times Stock Exchange Index) is a Share index of the 100 most highly capitalised 60 on the last day of trading in 1999 (December 30). Events 1460 - Wars of the Roses: Battle of Wakefield. 1816 - The Treaty of St 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 was deflating at full speed. A majority of the dot-coms ceased trading after burning through their venture capital, many having never made a net profit. Venture capital (also known as VC or Venture) is a type of Private equity capital typically provided to immature high-potential growth companies Investors often jokingly referred to these failed dot-coms as either "dot-bombs" or "dot-compost".

Aftermath

On January 11, 2001, America Online, a favorite of dot-com investors and pioneer of dial-up Internet access, acquired Time Warner, the world's largest media company. Events 1055 - Theodora is crowned Empress of the Byzantine Empire. Year 2001 ( MMI) was a Common year starting on Monday according to the Gregorian calendar. Time Warner Inc ( is the world's largest media and entertainment conglomerate, headquartered in New York City. Within two years, boardroom disagreements drove out both of the CEOs who made the deal, and in October 2003 AOL Time Warner dropped "AOL" from its name. A chief executive officer ( CEO) or chief executive is typically the highest-ranking corporate officer ( executive) or administrator 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. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against WorldCom, the largest of these, was found to have used illegal accounting practices to overstate its profits by billions of dollars. MCI Inc is an American Telecommunications company that is headquartered in Ashburn Virginia. Accounting scandals, or corporate accounting scandals are political and business scandals which arise with the disclosure of misdeeds by trusted executives 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. NorthPoint Communications (Former NASDAQ: NPNT) was a CLEC (Competitive Local Exchange Carrier focused on data transmission rather than voice Global Crossing Limited is a Telecommunications company that provides Computer networking services worldwide XO Communications (previously Nextlink Communications and Concentric Network Corporation) is a United States Telecommunications firm and one of the largest Competitive Covad Communications Group is an American provider of Broadband voice and Data communications. Demand for the new high-speed infrastructure never materialized, and it became dark fiber. In Fiber-optic communications dark fiber or unlit fiber (or fibre refers to unused fibers, available for use 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 liquidated; 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. In the broadest sense a fraud is a Deception made for personal gain or to damage another individual The US Securities and Exchange Commission (commonly known as the SEC) is an independent agency of the United States government which holds primary responsibility Merrill Lynch & Co Inc () is a global financial services firm 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 assured of long-term survival. Amazoncom Inc ( is an American electronic commerce ( E-commerce) company in Seattle Washington. eBay Inc is an American Internet company that manages eBaycom an Online auction and shopping Website in which people and businesses buy and

The Dot-com bubble crash wiped out $5 trillion in market value of technology companies from March 2000 to October 2002. Market capitalization/capitalisation (aka market cap, mkt cap or capitalized/capitalised value) is a measurement of Corporate or Economic [9]

Recent research suggests, however, that as many as 50% of the 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. [10]

Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. In the U. S. , International outsourcing and the recently allowed increase of skilled visa "guest workers" (e. Offshore may refer to oil and Natural gas production at sea see Oil platform. g. , those participating in the U. S. H-1B visa program) exacerbated the situation. The H-1B is a non-immigrant visa in the United States under the Immigration & Nationality Act section 101(a(15(H 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 housing bubble in the U. The United States housing bubble is an Economic bubble in many parts of the United States housing market including areas of California, 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. Robert James "Bob" Shiller (born 1946 is an American economist academic and best-selling author 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. Poker is a type of Card game in which players bet on the value of the card combination (" hand " in their possession by placing a bet into ”[11]

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. A Dot-com company, or simply a dot-com, is a company that does most of its business on the Internet, usually through a Website that uses the popular

See also

Terminology

Media

Venture Capital

Further reading

References

  1. ^ Spector, Robert (2000). amazon. com: Get Big Fast. ISBN 0066620414.  
  2. ^ Kadlec, Daniel (1999-08-09). "Day Trading: It's a Brutal World". Time.  
  3. ^ Johns, Ray (1999-03-04). Year 1999 ( MCMXCIX) was a Common year starting on Friday (link will display full 1999 Gregorian calendar) Events 51 - Nero, later to become Roman Emperor, is given the title Princeps iuventutis (head of the youth Daytrader Trend. Online Newshour: Forum. PBS. Retrieved on 2007-10-09. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 768 - Carloman I and Charlemagne are crowned Kings of The Franks.
  4. ^ Cringely, Robert X. (1999-12-16). Robert X Cringely is the Pen name of both technology journalist Mark Stephens and a string of writers for a column in InfoWorld, the one-time Year 1999 ( MCMXCIX) was a Common year starting on Friday (link will display full 1999 Gregorian calendar) Events 755 - An Lushan revolts against Chancellor Yang Guozhong at Fanyang, initiating the An Shi Rebellion There's a Sucker Born Every 60,000 Milliseconds. I, Cringely. PBS. Retrieved on 2007-10-09. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 768 - Carloman I and Charlemagne are crowned Kings of The Franks.
  5. ^ Index Chart
  6. ^ Theoretical Dow Jones Index
  7. ^ ^DJI: Historical Prices for DOW JONES INDUSTRIAL AVERAGE IN - Yahoo! Finance
  8. ^ ^GSPC: Historical Prices for S&P 500 INDEX,RTH - Yahoo! Finance
  9. ^ Will dotcom bubble burst again? / QCTimes.com
  10. ^ 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=871210
  11. ^ Jonathan R. Laing (2005-06-20). Year 2005 ( MMV) was a Common year starting on Saturday (link displays full calendar of the Gregorian calendar. Events 451 - Battle of Chalons: Flavius Aetius ' defeats Attila the Hun. The Bubble's New Home. Barron's Magazine. Barron's magazine is an American weekly Newspaper covering US
  12. ^ INTERNATIONAL BUSINESS; Fashionmall.com Swoops In for the Boo.com Fire Sale - New York Times
  13. ^ Top 10 dot-com flops - CNET.com
  14. ^ Historical prices of EDIG stock
  15. ^ EToys: Stock Went From Hot to Shot - Brief Article | Los Angeles Business Journal | Find Articles at BNET.com
  16. ^ eToys to shut down Web site March 8 - Feb. 26, 2001
  17. ^ Another One Bites the Dust - FreeInternet.com Files for Bankruptcy - Addlebrain.com
  18. ^ InternetNews Realtime IT News – Freeinternet.com Scores User Surge
  19. ^ ISP-Planet - News - Freei Files for Bankruptcy
  20. ^ BW Online | September 14, 2000 | Hotmail's Creator Is Starting Up Again, and Again, and
  21. ^ Microsoft buys Hotmail - CNET News.com
  22. ^ a b http://seattletimes.nwsource.com/art/news/business/infospace/infospaceTimelineDay1_2_intro.swf

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