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Dot-com bubble

May 06, 2023

The dot-com bubble (or dot-com boom) was a stock market bubble in the late 1990s. The period coincided with massive growth in Internet adoption, a proliferation of available venture capital, and the rapid growth of valuations in new dot-com startups.

The NASDAQ Composite index spiked in the late 1990s and then fell sharply as a result of the dot-com bubble.
Quarterly U.S. venture capital investments, 1995–2017

Between 1995 and its peak in March 2000, the Nasdaq Composite stock market index rose 800%, only to fall 740% from its peak by October 2002, giving up all its gains during the bubble.

During the dot-com crash, many online shopping companies, notably Pets.com, Webvan, and Boo.com, as well as several communication companies, such as Worldcom, NorthPoint Communications, and Global Crossing, failed and shut down.[1][2] Others, like Lastminute.com, MP3.com and PeopleSound, survived the burst but were acquired. Larger companies like Amazon and Cisco Systems lost large portions of their market capitalization, with Cisco losing 80% of its stock value.[3][4]

Background

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 in the early 20th century, radio in the 1920s, television in the 1940s, transistor electronics in the 1950s, computer time-sharing in the 1960s, and home computers and biotechnology in the 1980s.[5]

Overview

Low interest rates in 1998–99 facilitated an increase in start-up companies. 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.

In 2000, the dot-com bubble burst, and many dot-com startups went out of business after burning through their venture capital and failing to become profitable. Many others, however, did survive and thrive in the early 21st century. Many companies which began as online retailers blossomed and became highly profitable. More conventional retailers found online merchandising to be a profitable additional source of revenue. While some online entertainment and news outlets failed when their seed capital ran out, others persisted and eventually became economically self-sufficient. Traditional media outlets (newspaper publishers, broadcasters and cablecasters in particular) also found the Web to be a useful and profitable additional channel for content distribution, and an additional means to generate advertising revenue. The sites that survived and eventually prospered after the bubble burst had two things in common: a sound business plan, and a niche in the marketplace that was, if not unique, particularly well-defined and well-served.

In the aftermath of the dot-com bubble, telecommunications companies had a great deal of overcapacity as many Internet business clients went bust. That, plus ongoing investment in local cell infrastructure kept connectivity charges low, and helped to make high-speed Internet connectivity more affordable. During this time, a handful of companies found success developing business models that helped make the World Wide Web a more compelling experience. These include airline booking sites, Google's search engine and its profitable approach to keyword-based advertising, as well as eBay's auction site and Amazon.com's online department store. The low price of reaching millions worldwide, and the possibility of selling to or hearing from those people at the same moment when they were reached, promised to overturn established business dogma in advertising, mail-order sales, customer relationship management, and many more areas. The web was a new killer app—it could bring together unrelated buyers and sellers in seamless and low-cost ways. Entrepreneurs around the world developed new business models, and ran to their nearest venture capitalist. While some of the new entrepreneurs had experience in business and economics, the majority were simply people with ideas, and did not manage the capital influx prudently. Additionally, many dot-com business plans were predicated on the assumption that by using the Internet, they would bypass the distribution channels of existing businesses and therefore not have to compete with them; when the established businesses with strong existing brands developed their own Internet presence, these hopes were shattered, and the newcomers were left attempting to break into markets dominated by larger, more established businesses. Many did not have the ability to do so.

The dot-com bubble burst in March 2000, with the technology heavy NASDAQ Composite index peaking at 5,048.62 on March 10[6] (5,132.52 intraday), more than double its value just a year before. By 2001, the bubble's deflation was running full speed. A majority of the dot-coms had ceased trading, after having burnt through their venture capital and IPO capital, often without ever making a profit. But despite this, the Internet continues to grow, driven by commerce, ever greater amounts of online information, knowledge, social networking and access by mobile devices.

Prelude to the bubble

See also: 1990s United States boom

The 1993 release of Mosaic and subsequent web browsers during the following years gave computer users access to the World Wide Web, popularizing use of the Internet.[7] Internet use increased as a result of the reduction of the "digital divide" and advances in connectivity, uses of the Internet, and computer education. Between 1990 and 1997, the percentage of households in the United States owning computers increased from 15% to 35% as computer ownership progressed from a luxury to a necessity.[8] This marked the shift to the Information Age, an economy based on information technology, and many new companies were founded.

At the same time, a decline in interest rates increased the availability of capital.[9] The Taxpayer Relief Act of 1997, which lowered the top marginal capital gains tax in the United States, also made people more willing to make more speculative investments.[10] Alan Greenspan, then-Chair of the Federal Reserve, allegedly fueled investments in the stock market by putting a positive spin on stock valuations.[11] The Telecommunications Act of 1996 was expected to result in many new technologies from which many people wanted to profit.[12]

The bubble

As a result of these factors, many investors were eager to invest, at any valuation, in any dot-com company, especially if it had one of the Internet-related prefixes or a ".com" suffix in its name. Venture capital was easy to raise. Investment banks, which profited significantly from initial public offerings (IPO), fueled speculation and encouraged investment in technology.[13] A combination of rapidly increasing stock prices in the quaternary sector of the economy and confidence that the companies would turn future profits created an environment in which many investors were willing to overlook traditional metrics, such as the price–earnings ratio, and base confidence on technological advancements, leading to a stock market bubble.[11] Between 1995 and 2000, the Nasdaq Composite stock market index rose 400%. It reached a price–earnings ratio of 200, dwarfing the peak price–earnings ratio of 80 for the Japanese Nikkei 225 during the Japanese asset price bubble of 1991.[11] In 1999, shares of Qualcomm rose in value by 2,619%, 12 other large-cap stocks each rose over 1,000% in value, and seven additional large-cap stocks each rose over 900% in value. Even though the Nasdaq Composite rose 85.6% and the S&P 500 rose 19.5% in 1999, more stocks fell in value than rose in value as investors sold stocks in slower growing companies to invest in Internet stocks.[14]

An unprecedented amount of personal investing occurred during the boom and stories of people quitting their jobs to trade on the financial market were common.[15] The news media 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,[16] and CNBC reported on the stock market with the same level of suspense as many networks provided to the broadcasting of sports events.[11][17]

At the height of the boom, it was possible for a promising dot-com company to become a public company via an IPO and raise a substantial amount of money even if it had never made a profit—or, in some cases, realized any material revenue. People who received employee stock options became instant paper millionaires when their companies executed IPOs; however, most employees were barred from selling shares immediately due to lock-up periods.[13][page needed] The most successful entrepreneurs, such as Mark Cuban, sold their shares or entered into hedges to protect their gains. Sir John Templeton successfully shorted many dot-com stocks at the peak of the bubble during what he called "temporary insanity" and a "once-in-a-lifetime opportunity". He shorted stocks just before the expiration of lockup periods ending 6 months after initial public offerings, correctly anticipating many dot-com company executives would sell shares as soon as possible, and that large-scale selling would force down share prices.[18][19]

Spending tendencies of dot-com companies

Most dot-com companies incurred net operating losses as they spent heavily on advertising and promotions 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.[20][21]

The "growth over profits" mentality and the aura of "new economy" invincibility led some companies to engage in lavish spending on 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.[22][23]

Bubble in telecom

In the five years after the American Telecommunications Act of 1996 went into effect, telecommunications equipment companies invested more than $500 billion, mostly financed with debt, into laying fiber optic cable, adding new switches, and building wireless networks.[12] In many areas, such as the Dulles Technology Corridor in Virginia, governments funded technology infrastructure and created favorable business and tax law to encourage companies to expand.[24] The growth in capacity vastly outstripped the growth in demand.[12] Spectrum auctions for 3G in the United Kingdom in April 2000, led by Chancellor of the Exchequer Gordon Brown, raised £22.5 billion.[25] In Germany, in August 2000, the auctions raised £30 billion.[26][27] A 3G spectrum auction in the United States in 1999 had to be re-run when the winners defaulted on their bids of $4 billion. The re-auction netted 10% of the original sales prices.[28][29] When financing became hard to find as the bubble burst, the high debt ratios of these companies led to bankruptcy.[30] Bond investors recovered just over 20% of their investments.[31] However, several telecom executives sold stock before the crash including Philip Anschutz, who reaped $1.9 billion, Joseph Nacchio, who reaped $248 million, and Gary Winnick, who sold $748 million worth of shares.[32]

Bursting the bubble

See also: Early 2000s recession
 
Historical government interest rates in the United States

Nearing the turn of the 2000s, spending on technology was volatile as companies prepared for the Year 2000 problem. There were concerns that computer systems would have trouble changing their clock and calendar systems from 1999 to 2000 which might trigger wider social or economic problems, but there was virtually no impact or disruption due to adequate preparation.[33] Spending on marketing also reached new heights for the sector: Two dot-com companies purchased ad spots for Super Bowl XXXIII, and 17 dot-com companies bought ad spots the following year for Super Bowl XXXIV.[34]

On January 10, 2000, America Online, led by Steve Case and Ted Leonsis, announced a merger with Time Warner, led by Gerald M. Levin. The merger was the largest to date and was questioned by many analysts.[35] Then, on January 30, 2000, 12 ads of the 61 ads for Super Bowl XXXIV were purchased by dot-coms (sources state ranges from 12 up to 19 companies depending on the definition of dot-com company). At that time, the cost for a 30-second commercial was between $1.9 million and $2.2 million.[36][37]

Meanwhile, Alan Greenspan, then Chair of the Federal Reserve, raised interest rates several times; these actions were believed by many to have caused the bursting of the dot-com bubble. According to Paul Krugman, however, "he didn't raise interest rates to curb the market's enthusiasm; he didn't even seek to impose margin requirements on stock market investors. Instead, [it is alleged] he waited until the bubble burst, as it did in 2000, then tried to clean up the mess afterward".[38] Finance author and commentator E. Ray Canterbery agreed with Krugman's criticism.[39]

On Friday March 10, 2000, the NASDAQ Composite stock market index peaked at 5,048.62.[40] However, on March 13, 2000, news that Japan had once again entered a recession triggered a global sell off that disproportionately affected technology stocks.[41] Soon after, Yahoo! and eBay ended merger talks and the Nasdaq fell 2.6%, but the S&P 500 rose 2.4% as investors shifted from strong performing technology stocks to poor performing established stocks.[42]

On March 20, 2000, Barron's featured a cover article titled "Burning Up; Warning: Internet companies are running out of cash—fast", which predicted the imminent bankruptcy of many Internet companies.[43] This led many people to rethink their investments. That same day, MicroStrategy announced a revenue restatement due to aggressive accounting practices. Its stock price, which had risen from $7 per share to as high as $333 per share in a year, fell $140 per share, or 62%, in a day.[44] The next day, the Federal Reserve raised interest rates, leading to an inverted yield curve, although stocks rallied temporarily.[45]

Tangentially to all of speculation, Judge Thomas Penfield Jackson issued his conclusions of law in the case of United States v. Microsoft Corp. (2001) and ruled that Microsoft was guilty of monopolization and tying in violation of the Sherman Antitrust Act. This led to a one-day 15% decline in the value of shares in Microsoft and a 350-point, or 8%, drop in the value of the Nasdaq. Many people saw the legal actions as bad for technology in general.[46] That same day, Bloomberg News published a widely read article that stated: "It's time, at last, to pay attention to the numbers".[47]

On Friday, April 14, 2000, the Nasdaq Composite index fell 9%, ending a week in which it fell 25%. Investors were forced to sell stocks ahead of Tax Day, the due date to pay taxes on gains realized in the previous year.[48] By June 2000, dot-com companies were forced to reevaluate their spending on advertising campaigns.[49] On November 9, 2000, Pets.com, a much-hyped company that had backing from Amazon.com, went out of business only nine months after completing its IPO.[50][51] By that time, most Internet stocks had declined in value by 75% from their highs, wiping out $1.755 trillion in value.[52] In January 2001, just three dot-com companies bought advertising spots during Super Bowl XXXV.[53] The September 11 attacks accelerated the stock-market drop.[54] Investor confidence was further eroded by several accounting scandals and the resulting bankruptcies, including the Enron scandal in October 2001, the WorldCom scandal in June 2002,[55] and the Adelphia Communications Corporation scandal in July 2002.[56]

By the end of the stock market downturn of 2002, stocks had lost $5 trillion in market capitalization since the peak.[57] At its trough on October 9, 2002, the NASDAQ-100 had dropped to 1,114, down 78% from its peak.[58][59]

Aftermath

See also: List of companies affected by the dot-com bubble

After venture capital was no longer available, the operational mentality of executives and investors completely changed. A dot-com company's lifespan was measured by its burn rate, the rate at which it spent its existing capital. Many dot-com companies ran out of capital and went through liquidation. Supporting industries, such as advertising and shipping, scaled back their operations as demand for services fell. However, many companies were able to endure the crash; 48% of dot-com companies survived through 2004, albeit at lower valuations.[20]

Several companies and their executives, including Bernard Ebbers, Jeffrey Skilling, and Kenneth Lay, were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission levied large fines against investment firms including Citigroup and Merrill Lynch for misleading investors.[60]

After suffering losses, retail investors transitioned their investment portfolios to more cautious positions.[61] Popular Internet forums that focused on high tech stocks, such as Silicon Investor, Yahoo! Finance, and The Motley Fool declined in use significantly.[62]

Job market and office equipment glut

Layoffs of programmers resulted in a general glut in the job market. University enrollment for computer-related degrees dropped noticeably.[63][64] Aeron chairs, which retailed for $1,100 each, were liquidated en masse.[65]

Legacy

As growth in the technology sector stabilized, companies consolidated; some, such as Amazon.com, eBay, and Google gained market share and came to dominate their respective fields. The most valuable public companies are now generally in the technology sector.

In a 2015 book, venture capitalist Fred Wilson, who funded many dot-com companies and lost 90% of his net worth when the bubble burst, said about the dot-com bubble:

A friend of mine has a great line. 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... that's what all this speculative mania built.[66]

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Further reading

May 06, 2023
bubble, bubble, boom, stock, market, bubble, late, 1990s, period, coincided, with, massive, growth, internet, adoption, proliferation, available, venture, capital, rapid, growth, valuations, startups, nasdaq, composite, index, spiked, late, 1990s, then, fell, . The dot com bubble or dot com boom was a stock market bubble in the late 1990s The period coincided with massive growth in Internet adoption a proliferation of available venture capital and the rapid growth of valuations in new dot com startups The NASDAQ Composite index spiked in the late 1990s and then fell sharply as a result of the dot com bubble Quarterly U S venture capital investments 1995 2017 Between 1995 and its peak in March 2000 the Nasdaq Composite stock market index rose 800 only to fall 740 from its peak by October 2002 giving up all its gains during the bubble During the dot com crash many online shopping companies notably Pets com Webvan and Boo com as well as several communication companies such as Worldcom NorthPoint Communications and Global Crossing failed and shut down 1 2 Others like Lastminute com MP3 com and PeopleSound survived the burst but were acquired Larger companies like Amazon and Cisco Systems lost large portions of their market capitalization with Cisco losing 80 of its stock value 3 4 Contents 1 Background 2 Overview 3 Prelude to the bubble 4 The bubble 4 1 Spending tendencies of dot com companies 4 2 Bubble in telecom 5 Bursting the bubble 6 Aftermath 6 1 Job market and office equipment glut 6 2 Legacy 7 References 8 Further readingBackground EditHistorically 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 in the early 20th century radio in the 1920s television in the 1940s transistor electronics in the 1950s computer time sharing in the 1960s and home computers and biotechnology in the 1980s 5 Overview EditThis section needs additional citations for verification Please help improve this article by adding citations to reliable sources in this section Unsourced material may be challenged and removed Find sources Dot com bubble news newspapers books scholar JSTOR December 2022 Learn how and when to remove this template message Low interest rates in 1998 99 facilitated an increase in start up companies 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 In 2000 the dot com bubble burst and many dot com startups went out of business after burning through their venture capital and failing to become profitable Many others however did survive and thrive in the early 21st century Many companies which began as online retailers blossomed and became highly profitable More conventional retailers found online merchandising to be a profitable additional source of revenue While some online entertainment and news outlets failed when their seed capital ran out others persisted and eventually became economically self sufficient Traditional media outlets newspaper publishers broadcasters and cablecasters in particular also found the Web to be a useful and profitable additional channel for content distribution and an additional means to generate advertising revenue The sites that survived and eventually prospered after the bubble burst had two things in common a sound business plan and a niche in the marketplace that was if not unique particularly well defined and well served In the aftermath of the dot com bubble telecommunications companies had a great deal of overcapacity as many Internet business clients went bust That plus ongoing investment in local cell infrastructure kept connectivity charges low and helped to make high speed Internet connectivity more affordable During this time a handful of companies found success developing business models that helped make the World Wide Web a more compelling experience These include airline booking sites Google s search engine and its profitable approach to keyword based advertising as well as eBay s auction site and Amazon com s online department store The low price of reaching millions worldwide and the possibility of selling to or hearing from those people at the same moment when they were reached promised to overturn established business dogma in advertising mail order sales customer relationship management and many more areas The web was a new killer app it could bring together unrelated buyers and sellers in seamless and low cost ways Entrepreneurs around the world developed new business models and ran to their nearest venture capitalist While some of the new entrepreneurs had experience in business and economics the majority were simply people with ideas and did not manage the capital influx prudently Additionally many dot com business plans were predicated on the assumption that by using the Internet they would bypass the distribution channels of existing businesses and therefore not have to compete with them when the established businesses with strong existing brands developed their own Internet presence these hopes were shattered and the newcomers were left attempting to break into markets dominated by larger more established businesses Many did not have the ability to do so The dot com bubble burst in March 2000 with the technology heavy NASDAQ Composite index peaking at 5 048 62 on March 10 6 5 132 52 intraday more than double its value just a year before By 2001 the bubble s deflation was running full speed A majority of the dot coms had ceased trading after having burnt through their venture capital and IPO capital often without ever making a profit But despite this the Internet continues to grow driven by commerce ever greater amounts of online information knowledge social networking and access by mobile devices Prelude to the bubble EditSee also 1990s United States boom The 1993 release of Mosaic and subsequent web browsers during the following years gave computer users access to the World Wide Web popularizing use of the Internet 7 Internet use increased as a result of the reduction of the digital divide and advances in connectivity uses of the Internet and computer education Between 1990 and 1997 the percentage of households in the United States owning computers increased from 15 to 35 as computer ownership progressed from a luxury to a necessity 8 This marked the shift to the Information Age an economy based on information technology and many new companies were founded At the same time a decline in interest rates increased the availability of capital 9 The Taxpayer Relief Act of 1997 which lowered the top marginal capital gains tax in the United States also made people more willing to make more speculative investments 10 Alan Greenspan then Chair of the Federal Reserve allegedly fueled investments in the stock market by putting a positive spin on stock valuations 11 The Telecommunications Act of 1996 was expected to result in many new technologies from which many people wanted to profit 12 The bubble EditAs a result of these factors many investors were eager to invest at any valuation in any dot com company especially if it had one of the Internet related prefixes or a com suffix in its name Venture capital was easy to raise Investment banks which profited significantly from initial public offerings IPO fueled speculation and encouraged investment in technology 13 A combination of rapidly increasing stock prices in the quaternary sector of the economy and confidence that the companies would turn future profits created an environment in which many investors were willing to overlook traditional metrics such as the price earnings ratio and base confidence on technological advancements leading to a stock market bubble 11 Between 1995 and 2000 the Nasdaq Composite stock market index rose 400 It reached a price earnings ratio of 200 dwarfing the peak price earnings ratio of 80 for the Japanese Nikkei 225 during the Japanese asset price bubble of 1991 11 In 1999 shares of Qualcomm rose in value by 2 619 12 other large cap stocks each rose over 1 000 in value and seven additional large cap stocks each rose over 900 in value Even though the Nasdaq Composite rose 85 6 and the S amp P 500 rose 19 5 in 1999 more stocks fell in value than rose in value as investors sold stocks in slower growing companies to invest in Internet stocks 14 An unprecedented amount of personal investing occurred during the boom and stories of people quitting their jobs to trade on the financial market were common 15 The news media 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 16 and CNBC reported on the stock market with the same level of suspense as many networks provided to the broadcasting of sports events 11 17 At the height of the boom it was possible for a promising dot com company to become a public company via an IPO and raise a substantial amount of money even if it had never made a profit or in some cases realized any material revenue People who received employee stock options became instant paper millionaires when their companies executed IPOs however most employees were barred from selling shares immediately due to lock up periods 13 page needed The most successful entrepreneurs such as Mark Cuban sold their shares or entered into hedges to protect their gains Sir John Templeton successfully shorted many dot com stocks at the peak of the bubble during what he called temporary insanity and a once in a lifetime opportunity He shorted stocks just before the expiration of lockup periods ending 6 months after initial public offerings correctly anticipating many dot com company executives would sell shares as soon as possible and that large scale selling would force down share prices 18 19 Spending tendencies of dot com companies Edit Most dot com companies incurred net operating losses as they spent heavily on advertising and promotions 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 20 21 The growth over profits mentality and the aura of new economy invincibility led some companies to engage in lavish spending on 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 22 23 Bubble in telecom Edit In the five years after the American Telecommunications Act of 1996 went into effect telecommunications equipment companies invested more than 500 billion mostly financed with debt into laying fiber optic cable adding new switches and building wireless networks 12 In many areas such as the Dulles Technology Corridor in Virginia governments funded technology infrastructure and created favorable business and tax law to encourage companies to expand 24 The growth in capacity vastly outstripped the growth in demand 12 Spectrum auctions for 3G in the United Kingdom in April 2000 led by Chancellor of the Exchequer Gordon Brown raised 22 5 billion 25 In Germany in August 2000 the auctions raised 30 billion 26 27 A 3G spectrum auction in the United States in 1999 had to be re run when the winners defaulted on their bids of 4 billion The re auction netted 10 of the original sales prices 28 29 When financing became hard to find as the bubble burst the high debt ratios of these companies led to bankruptcy 30 Bond investors recovered just over 20 of their investments 31 However several telecom executives sold stock before the crash including Philip Anschutz who reaped 1 9 billion Joseph Nacchio who reaped 248 million and Gary Winnick who sold 748 million worth of shares 32 Bursting the bubble EditSee also Early 2000s recession Historical government interest rates in the United States Nearing the turn of the 2000s spending on technology was volatile as companies prepared for the Year 2000 problem There were concerns that computer systems would have trouble changing their clock and calendar systems from 1999 to 2000 which might trigger wider social or economic problems but there was virtually no impact or disruption due to adequate preparation 33 Spending on marketing also reached new heights for the sector Two dot com companies purchased ad spots for Super Bowl XXXIII and 17 dot com companies bought ad spots the following year for Super Bowl XXXIV 34 On January 10 2000 America Online led by Steve Case and Ted Leonsis announced a merger with Time Warner led by Gerald M Levin The merger was the largest to date and was questioned by many analysts 35 Then on January 30 2000 12 ads of the 61 ads for Super Bowl XXXIV were purchased by dot coms sources state ranges from 12 up to 19 companies depending on the definition of dot com company At that time the cost for a 30 second commercial was between 1 9 million and 2 2 million 36 37 Meanwhile Alan Greenspan then Chair of the Federal Reserve raised interest rates several times these actions were believed by many to have caused the bursting of the dot com bubble According to Paul Krugman however he didn t raise interest rates to curb the market s enthusiasm he didn t even seek to impose margin requirements on stock market investors Instead it is alleged he waited until the bubble burst as it did in 2000 then tried to clean up the mess afterward 38 Finance author and commentator E Ray Canterbery agreed with Krugman s criticism 39 On Friday March 10 2000 the NASDAQ Composite stock market index peaked at 5 048 62 40 However on March 13 2000 news that Japan had once again entered a recession triggered a global sell off that disproportionately affected technology stocks 41 Soon after Yahoo and eBay ended merger talks and the Nasdaq fell 2 6 but the S amp P 500 rose 2 4 as investors shifted from strong performing technology stocks to poor performing established stocks 42 On March 20 2000 Barron s featured a cover article titled Burning Up Warning Internet companies are running out of cash fast which predicted the imminent bankruptcy of many Internet companies 43 This led many people to rethink their investments That same day MicroStrategy announced a revenue restatement due to aggressive accounting practices Its stock price which had risen from 7 per share to as high as 333 per share in a year fell 140 per share or 62 in a day 44 The next day the Federal Reserve raised interest rates leading to an inverted yield curve although stocks rallied temporarily 45 Tangentially to all of speculation Judge Thomas Penfield Jackson issued his conclusions of law in the case of United States v Microsoft Corp 2001 and ruled that Microsoft was guilty of monopolization and tying in violation of the Sherman Antitrust Act This led to a one day 15 decline in the value of shares in Microsoft and a 350 point or 8 drop in the value of the Nasdaq Many people saw the legal actions as bad for technology in general 46 That same day Bloomberg News published a widely read article that stated It s time at last to pay attention to the numbers 47 On Friday April 14 2000 the Nasdaq Composite index fell 9 ending a week in which it fell 25 Investors were forced to sell stocks ahead of Tax Day the due date to pay taxes on gains realized in the previous year 48 By June 2000 dot com companies were forced to reevaluate their spending on advertising campaigns 49 On November 9 2000 Pets com a much hyped company that had backing from Amazon com went out of business only nine months after completing its IPO 50 51 By that time most Internet stocks had declined in value by 75 from their highs wiping out 1 755 trillion in value 52 In January 2001 just three dot com companies bought advertising spots during Super Bowl XXXV 53 The September 11 attacks accelerated the stock market drop 54 Investor confidence was further eroded by several accounting scandals and the resulting bankruptcies including the Enron scandal in October 2001 the WorldCom scandal in June 2002 55 and the Adelphia Communications Corporation scandal in July 2002 56 By the end of the stock market downturn of 2002 stocks had lost 5 trillion in market capitalization since the peak 57 At its trough on October 9 2002 the NASDAQ 100 had dropped to 1 114 down 78 from its peak 58 59 Aftermath EditSee also List of companies affected by the dot com bubble After venture capital was no longer available the operational mentality of executives and investors completely changed A dot com company s lifespan was measured by its burn rate the rate at which it spent its existing capital Many dot com companies ran out of capital and went through liquidation Supporting industries such as advertising and shipping scaled back their operations as demand for services fell However many companies were able to endure the crash 48 of dot com companies survived through 2004 albeit at lower valuations 20 Several companies and their executives including Bernard Ebbers Jeffrey Skilling and Kenneth Lay were accused or convicted of fraud for misusing shareholders money and the U S Securities and Exchange Commission levied large fines against investment firms including Citigroup and Merrill Lynch for misleading investors 60 After suffering losses retail investors transitioned their investment portfolios to more cautious positions 61 Popular Internet forums that focused on high tech stocks such as Silicon Investor Yahoo Finance and The Motley Fool declined in use significantly 62 Job market and office equipment glut Edit Layoffs of programmers resulted in a general glut in the job market University enrollment for computer related degrees dropped noticeably 63 64 Aeron chairs which retailed for 1 100 each were liquidated en masse 65 Legacy Edit As growth in the technology sector stabilized companies consolidated some such as Amazon com eBay and Google gained market share and came to dominate their respective fields The most valuable public companies are now generally in the technology sector In a 2015 book venture capitalist Fred Wilson who funded many dot com companies and lost 90 of his net worth when the bubble burst said about the dot com bubble A friend of mine has a great line 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 that s what all this speculative mania built 66 References Edit The greatest defunct Web sites and dotcom disasters CNET June 5 2008 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these pictures Business Insider Archived from the original on March 13 2020 Retrieved February 10 2020 Here s Why The Dot Com Bubble Began And Why It Popped Business Insider December 15 2010 Archived from the original on April 6 2020 Retrieved February 10 2020 a b c d Teeter Preston Sandberg Jorgen 2017 Cracking the enigma of asset bubbles with narratives Strategic Organization 15 1 91 99 doi 10 1177 1476127016629880 S2CID 156163200 a b c Litan Robert E December 1 2002 The Telecommunications Crash What To Do Now Brookings Institution Archived from the original on March 30 2018 Retrieved March 30 2018 a b Smith Andrew 2012 Totally Wired On the Trail of the Great Dotcom Swindle Bloomsbury Books ISBN 978 1 84737 449 3 Archived from the original on 2020 08 01 Retrieved 2017 05 08 Norris Floyd January 3 2000 THE YEAR IN THE MARKETS 1999 Extraordinary Winners and More Losers The New York Times Archived from the original on August 31 2017 Retrieved August 26 2017 Kadlec Daniel August 9 1999 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February 14 2016 Here s what the future of bitcoin looks like and it s bright VentureBeat Archived from the original on April 15 2017 Retrieved April 14 2017 Further reading EditAbramson Bruce 2005 Digital Phoenix Why the Information Economy Collapsed and How it Will Rise Again MIT Press ISBN 978 0 262 51196 4 Aharon David Y Gavious Ilanit Yosef Rami 2010 Stock market bubble effects on mergers and acquisitions The Quarterly Review of Economics and Finance 50 4 456 70 doi 10 1016 j qref 2010 05 002 Cassidy John 2009 Dot con How America Lost Its Mind and Its Money in the Internet Era HarperCollins ISBN 9780061841781 Cellan Jones Rory 2001 Dot Bomb The Rise and Fall of Dot com Britain Aurum ISBN 978 1854107909 Daisey Mike 2014 Twenty one Dog Years Doing Time at Amazon com Free Press ISBN 978 0 7432 2580 9 Goldfarb Brent D Kirsch David Miller David A April 24 2006 Was There Too Little Entry During the Dot Com Era Robert H Smith School Research Paper RHS 06 029 SSRN 899100 Kindleberger Charles P 2005 Manias Panics and Crashes A History of Financial Crises John Wiley amp Sons ISBN 9780230365353 Kuo David 2001 dot bomb My Days and Nights at an Internet Goliath ISBN 978 0 316 60005 7 Lowenstein Roger 2004 Origins of the Crash The Great Bubble and Its Undoing Penguin Books ISBN 978 1 59420 003 8 Wolff Michael 1999 Burn Rate How I Survived the Gold Rush Years on the Internet Orion Publishing Group ISBN 9780752826066 Burn Rate at Google Books Retrieved from https en wikipedia org w index php title Dot com bubble amp oldid 1152436751, wikipedia, wiki, book, books, library,

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