Dotcom Bubble

Dotcom bubble was a financial/stock market bubble that was caused by the speculation in the dotcom or internet-based companies from 1995 to 2000. A stock market bubble can be defined as rapid surge in the market valuation due to rise in value of assets, followed by an even quicker decrease in the market value. This is known as a ‘crash’ or ‘bubble burst’. Surprisingly, only 2.3% of the US population was using internet in early 1993 and the figures changed dramatically after MOSAIC was launched. It was the first home internet browser that supported pictures alongside text and within one month after its launch, there was a 1000% increase in US online traffic. Acknowledging the facts, entrepreneurs saw amazing untapped potential in the era of internet and this leads to the beginning of dotcom bubble.

In 1993, with the internet at its infancy and interest rate at its lowest, entrepreneurs started making move and all kinds of dotcom companies started showing up, from online retailers, search engines and early social media pages. But things started changing in early 1995 when NETSCAPE COMMUNICATIONS launched its own internet browser. It’s easier and faster interface made MOSAIC out of business. Even though Netscape is making loses, the founders decided to celebrate the success of the company by making an initial public offer (IPO). In this internet era, where people were more interested in the company’s website traffic than the financial statements, it was very difficult to ignore the Netscape Communication’s IPO. On the first trading day, the stock doubled from $28 to $58.25 and pushed the company’s market capitalization to $2.7 billions within minutes.  

People were madly attracted to the internet age and they were throwing money on every IPO they could. Every other company is buying their dotcom domains and were getting public. Before you know it auction sites, web portals, internet radio, food delivery services start coming online. The companies were spending money on yahoo, advertisements, acquisitions, fancy offices, heavy paychecks and parties for employees. After these costs their profits were literally non-existent and they still convinced the investors that they will be profitable in future. By 1999, the Nasdaq has doubled and this hype further worse the situation. Some companies added dotcom to their sites to get the hype and other just were listing their stocks with incomplete products.

Business activities were boosting, stocks were giving 5,6,7 times on their first trading day, people trading stocks full time and companies battling for online real estate pushed the Nasdaq to all-time high of 5,132.52 on March 10,2000. While in 5 years alone Nasdaq surged from 751.49 to 5,132.52, it only took half of that to undo it all. Government tightening the monetary policy, people falling demand of computer equipment, and further on March 13 when Japan entered recession, Nasdaq slips facing its 4th largest fall at that time. With no further supply form the public, the companies faced cash crunch and many multi-million-dollar companies turned to dust within months and Nasdaq hit the rock bottom on October 9,2002 and made a low of 1,114.11 (77% decline from its peak). Over 4,15,000+ IT jobs were lost and it took Nasdaq 15 years to recover form this crash. This was the dotcom bubble.

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Published by Vanshaj Bindlish

Writing about the stuff that I consider worth sharing with you.

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