Dot-com bubble

The dot-com bubble was a time when many people believed that anything related to the Internet would become very valuable very quickly. This happened mostly during the late 1990s and reached its highest point on March 10, 2000. At that time, the World Wide Web and the Internet were becoming very popular, so lots of money was given to new companies that were just starting, called startups.

Between 1995 and March 2000, the value of stocks in technology companies grew by 600%. But after March 2000, the values started to fall. By October 2002, they had lost most of those gains.

When the bubble burst, many online shopping companies like Pets.com, Webvan, and Boo.com closed down. Some bigger companies, like Amazon and Cisco Systems, also lost a lot of their value. This period showed that not all Internet-based business ideas would succeed, even if many people thought they would.

Background

The dot-com boom was a time when many new internet businesses grew very quickly. It happened in the late 1990s and was similar to other times when new technology, like railroads, automobiles, radio, television, transistor electronics, computer time-sharing, home computers, and biotechnology, caused excitement and big changes. Many people invested money in these new ideas, hoping to get rich.

Prelude to the bubble

See also: 1990s United States boom

In the early 1990s, new tools made the Internet easier to use for everyone. More people started connecting online, and having a computer at home became normal. This led to the start of many new companies trying to use these new technologies.

At the same time, it became easier for people to invest money because taxes on profits were lowered. This made many people excited to invest in new companies, hoping to make big gains. New rules about communication also made many believe new inventions were coming soon, which added to the excitement.

The bubble

Many people wanted to invest in companies called "dot-coms," especially if their names had special internet words. It was easy to get money to start these companies, and banks helped by selling parts of them to the public. Prices went up very fast, and people thought these companies would make lots of money in the future, even if they weren’t making money yet.

Between 1995 and 2000, the value of these internet companies grew by 400%. Some companies’ shares went up over 2,000% in just one year! People were excited and started spending a lot of money on ads and parties to get more customers. They believed they just needed to grow fast, and they could make money later. However, when the prices started to fall in 2000, many of these companies ran into trouble.

Bursting the bubble

See also: Early 2000s recession

As the year 2000 began, spending on technology changed a lot. Companies were getting ready for the Year 2000 problem, worries that computers might not work right when the calendar changed from 1999 to 2000. But they prepared well, and nothing big happened.

Many technology companies spent a lot of money on ads, even during big sports events like the Super Bowl. On January 10, 2000, a very big business deal happened between America Online and Time Warner. Some people thought this deal was not a good idea.

In March 2000, the value of technology stocks got very high, but then started to fall. News that Japan was having money problems made people sell their technology stocks. Some big companies like Yahoo! and eBay decided not to combine their businesses, which also made the stock prices go down.

By April 2000, many people were worried about technology companies running out of money. One company’s stock price dropped a lot in one day, and this made people even more nervous. Legal trouble for a big technology company also made people lose trust.

In the months that followed, many technology companies had trouble paying for their ads. Some companies ran out of money and had to close, like Pets.com. The stock market kept going down, especially after big events like the September 11 attacks and some business scandals. By October 2002, the value of technology stocks had dropped a lot from their highest point.

Aftermath

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

When money for new projects ran out, many leaders changed how they managed their companies. Some businesses used all their money too quickly and had to close down. Industries that helped these companies, like advertising and shipping, also had to cut back because there was less work.

Even though many companies closed, about half of them managed to stay open by 2004, though they were worth less than before.

Some leaders, like Bernard Ebbers, Jeffrey Skilling, and Kenneth Lay, faced trouble for using money from shareholders in the wrong way. The U.S. Securities and Exchange Commission also punished some big investment firms for giving misleading information to people who wanted to invest.

After losing money, many everyday investors decided to be more careful with their money. Popular websites where people talked about technology stocks, like Silicon Investor, Yahoo! Finance, and The Motley Fool, had fewer visitors.

The job market for computer experts got harder, and fewer students chose to study computers in university. Many special chairs that were popular in offices were sold for much less money than before.

Over time, the technology industry settled down. Some companies, like Amazon.com, eBay, Nvidia, and Google, became very successful and led their areas. Today, many of the most valuable companies are in the technology sector.

In a book from 2015, a venture capitalist named Fred Wilson shared his thoughts. He believed that even though a lot of money was lost, the excitement during that time helped build important parts of the Internet and software we use today.