Rise Of The Dot.Coms

Even today most individuals are of the opinion that economic bubbles are just hot air, however, history has shown us that other factors are essential to inflate market bubbles: “irrational optimism, contagion, hyper-speculation and a growing IPO market ” - Was this the case with the dot.com bubble?

The dot.com bubble (and I was there) was powered by the rise of the Internet and the tech industry in general. 1995 marked the beginning of this bubble, due to the substantial increase in the volume of Internet users, who were seen by many companies as potential consumers. As a result, dot.com businesses soon resembled garden weeds, sprouting up everywhere and became known as the “dot.coms,” - after the .com in their web addresses.

A Bubble - What it really looks like!

By the late 1990’s the speculative IT bubble took center stage. Many specialists said that the Internet had unlimited potential (were they wrong??). They believed that the old brick and mortar companies wouldn’t even hold a candle to the new Internet e-businesses. IPO’s became all the rage and companies began marketing every type of product from pet food (Pets.com) to door-to-door grocery services. With the price of stocks such as Yahoo doubling every six months, it was very difficult for the ordinary man/woman to avoid catching Internet fever (Paper on - Contagion). At that time Internet corporations such as Yahoo had more capitalization than multi-national corporation General Motors.

This technology bubble started with the implementation of new technology. It proceeded to grow. Others caught on. MORE people followed (Herding effect). Then the “make money at any cost” people jumped on board in a big “me too” migration. “Lots of money got thrown around in a big digital gold rush”. Was it all based on hype – hot air? Most of the companies at the time engaged in unusual and daring business practices, many without any business plan or structure. They adopted a “policy of growth over profit”. They were of the belief that if they continued to build up their customer base (website hits) their profits would rise simultaneously. Investors accounted for these dangerous practices with money; lots of it.

This dot-com bubble signified the irrationality of investors once again. Investors only gambled on the consistent rise of Internet companies. These gambles led to an idealistic price increase and a quick buck! The NASDAQ increased dramatically during the dot-com bubble and tech hot spots like Silicon Valley prospered. (I will post some videos next week about this).

Just to put this dotcom rise into perspective, “it took radio 38 years, television 13 years and the Internet just 4 years to reach 50 million users”.

But, like all boom cycles in human history even the IT (Dot.Com) boom would have to end someday, that time would be March 2000. My next post will focus solely on the demise of the Internet stock boom.