The "dot-com bubble" (or sometimes the "I.T. bubble"[1]) was a speculative bubble An economic bubble is “trade in high volumes at prices that are considerably at variance with intrinsic values”. (Another way to describe it is: trade in products or assets with inflated values.) covering roughly 1995–2000 (with a climax on March 10, 2000 with the NASDAQ The Nasdaq Composite is a stock market index of all of the common stocks and similar securities listed on the NASDAQ stock market, meaning that it has over 3,000 components. It is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. Since both U.S. and non-U.S. companies are listed peaking at 5132.52) during which stock markets A stock market or equity market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately in industrialized nations saw their equity value rise rapidly from growth in the more recent Internet sector The quaternary sector of the economy is an extension of the three-sector hypothesis of industry. It principally concerns the following services: information generation, information sharing, consultation, education and research and development. It is sometimes incorporated into the tertiary sector but some argue that intellectual services are and related fields. While the latter part was a boom and bust The term boom and bust refers to a great buildup in the price of a particular commodity or, alternately, the localized rise in an economy, often based upon the value of a single commodity, followed by a downturn as the commodity price falls due to a change in economic circumstances or the collapse of unrealistic expectations cycle, the Internet boom sometimes is meant to refer to the steady commercial growth of the Internet with the advent of the world wide web The World Wide Web, abbreviated as WWW and commonly known as the Web, is a system of interlinked hypertext documents accessed via the Internet. With a web browser, one can view web pages that may contain text, images, videos, and other multimedia and navigate between them by using hyperlinks. Using concepts from earlier hypertext systems, British as exemplified by the first release of the Mosaic web browser Mosaic is the web browser credited with popularizing the World Wide Web. It was also a client for earlier protocols such as FTP, Usenet, and Gopher. Its clean, easily understood user interface, reliability, Windows port and simple installation all contributed to making it the application that opened up the Web to the general public. Mosaic was in 1993 and continuing through the 1990s.
The period was marked by the founding (and, in many cases, spectacular failure) of a group of new Internet The Internet is a global system of interconnected computer networks that use the standard Internet Protocol Suite to serve billions of users worldwide. It is a network of networks that consists of millions of private, public, academic, business, and government networks of local to global scope that are linked by a broad array of electronic and-based companies commonly referred to as dot-coms 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 top-level domain, ".com" (in turn derived from the word "commercial"). Companies were seeing their stock prices shoot up if they simply added an "e-" prefix Internet-related prefixes include e-, i-, cyber-, info-, techno-, and net-, that are prefixed to a wide range of existing words to form new, Internet-related flavors of existing concepts. Additionally the adjective virtual is often used in a similar manner to their name and/or a ".com The domain name com is a generic top-level domain in the Domain Name System of the Internet. Its name is derived from commercial, indicating its original intended purpose for networks of general commercial character" to the end, which one author called "prefix A prefix is an affix which is placed before the stem of a word. Particularly in the study of Semitic languages, a prefix is called a preformative, because it alters the form of the words to which it is affixed investing".[2]
A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum. Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a in stocks, and widely available venture capital Venture capital is a type of private equity capital typically provided for early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made in cash in exchange for shares in the invested company. It created an environment in which many investors were willing to overlook traditional metrics such as P/E ratio The P/E ratio of a stock (also called its "P/E", "PER", "earnings multiple", or simply "multiple") is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are in favor of confidence in technological advancements.
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Bubble growth
The venture capitalists saw record-setting rises in stock valuations of dot-com 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 top-level domain, ".com" (in turn derived from the word "commercial") 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. The low interest rates in 1998–99 helped increase the start-up capital amounts. Although a number of these new entrepreneurs An entrepreneur is a person who has possession of a new enterprise, venture or idea and assumes significant accountability for the inherent risks and the outcome.[note 1] The term is originally a loanword from French and was first defined by the Irish economist Richard Cantillon. Entrepreneur in English is a term applied to the type of personality had realistic plans and administrative ability, many more of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot-com concept.[citation needed]
A canonical "dot-com" company's business model A business model describes the rationale of how an organization creates, delivers, and captures value - economic, social, or other forms of value. The process of business model design is part of business strategy relied on harnessing network effects In economics and business, a network effect is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service increases as more people use it by operating at a sustained net loss to build market share Market share, in strategic management and marketing is, according to Carlton O'Neal, the percentage or proportion of the total available market or market segment that is being serviced by a company. It can be expressed as a company's sales revenue divided by the total sales revenue available in that market. It can also be expressed as a company's (or mind share Mind share, or the development of consumer awareness or popularity, is one of the main objectives of advertising and promotion. When people think of examples of a product type or category, they usually think of a limited number of brand names. For example, a prospective buyer of a college education will have several thousand colleges to choose). These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.[3] During the loss period the companies relied on venture capital Venture capital is a type of private equity capital typically provided for early-stage, high-potential, growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Venture capital investments are generally made in cash in exchange for shares in the invested company. It and especially initial public offerings An initial public offering referred to simply as an "offering" or "flotation," is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to of stock to pay their expenses while having no source of income at all. 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 The term boom and bust refers to a great buildup in the price of a particular commodity or, alternately, the localized rise in an economy, often based upon the value of a single commodity, followed by a downturn as the commodity price falls due to a change in economic circumstances or the collapse of unrealistic expectations of the past including railroads in the 1840s, automobiles and radio in the 1920s and transistor electronics A transistor is a semiconductor device used to amplify and switch electronic signals. It is made of a solid piece of semiconductor material, with at least three terminals for connection to an external circuit. A voltage or current applied to one pair of the transistor's terminals changes the current flowing through another pair of terminals in the 1950s.[citation needed]
Soaring stocks
In financial markets, a stock market bubble A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation is a self-perpetuating rise or boom in the share prices of stocks of a particular industry. 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 In economics, a monopoly (from Greek monos / μονος + polein / πωλειν (to sell)) exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. (This is in contrast to a monopsony which relates to a their respective sectors through network effects, and it was clear that even if the plan was sound, there could only be one network-effects winner in each sector, and therefore that most companies with this business plan would fail. In fact, many sectors could not support even one company powered entirely by network effects.[citation needed]
In spite of this, however, 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 for the trading day. Traders that participate in day trading are called active traders or day traders.[4][5][6]
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. For instance, Google and Amazon did not see any profit in their first years. Amazon was spending on expanding customer base and letting people know that it existed and Google was busy spending on creating more powerful machine capacity to serve its expanding search engine.[citation needed] The phrase "Get large or get lost" was the wisdom of the day.[7] At the height of the boom, it was possible for a promising dot-com to make an initial public offering An initial public offering referred to simply as an "offering" or "flotation," is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to (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.[citation needed] In such a situation, a company's lifespan was measured by its burn rate 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. If the shareholder capital is exhausted, the company will either have to start making a profit, find additional funding, or close down: that is, the rate at which a non-profitable company lacking a viable business model A business model describes the rationale of how an organization creates, delivers, and captures value - economic, social, or other forms of value. The process of business model design is part of business strategy ran through its capital served as the metric.
Public awareness campaigns were one of the ways in which 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 An onomatopoeia or onomatopœia Onomatopoeia (help·info) (from the Greek ὀνοματοποιία; ὄνομα for "name" and ποιέω for "I make") (adjectival form: "onomatopoeic" or "onomatopoetic") is a word that imitates or suggests the source of the sound that it describes. Onomatopoeia (as an nonsense words that they hoped would be memorable and not easily confused with a competitor. Super Bowl XXXIV in January 2000 featured seventeen dot-com companies that each paid over two million dollars for a thirty-second spot. By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed iWon.com IWon.com is a free casual game site and web portal that offers the chance to win cash and prizes through activities such as clicking through links or playing online games. Originally, IWon was highly similar to Yahoo! , but offered points (good toward daily prizes) for using their search engine and various other features, such as news and weather gave away ten million dollars to a lucky contestant on an April 15, 2000, half-hour primetime special that was broadcast on CBS.
Not surprisingly, the "growth over profits" mentality and the aura of "new economy The New Economy was an evolution of developed countries from an industrial/manufacturing-based wealth producing economy into a service sector asset-based economy, brought about by globalization and currency manipulation[citation needed] by governments and their central banks, following strategic changes influenced[citation needed] by writers such" invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with stock options In finance, an option is a contract between a buyer and a seller that gives the buyer of the option the right, but not the obligation, to buy or to sell a specified asset on or before the option's expiration time, at an agreed price, the strike price instead of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.
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 Broadband Internet access, often shortened to just broadband, is a high data rate Internet access—typically contrasted with dial-up access using a 56k modem, went deeply into debt to improve their networks with high-speed equipment and fiber optic Fiber optics is the field of applied science and engineering concerned with the design and application of optical fibers. An optical fiber is a thin, flexible, transparent fiber that acts as a waveguide, or "light pipe", to transmit light between the two ends of the fiber. Optical fibers are widely used in fiber-optic communications, cables. Companies that produced network equipment like Nortel Networks Nortel Networks Corporation , formerly known as Northern Telecom Limited and sometimes known simply as Nortel, is a multinational telecommunications equipment manufacturer headquartered in Toronto, Ontario, Canada. On January 14, 2009, Nortel filed for protection from creditors in the United States, Canada, and the United Kingdom, in order to were irrevocably damaged by such over-extension; Nortel declared bankruptcy in early 2009. Companies like Cisco, which did not have any production facilities, but brought from other manufacturers, were able to leave quickly and actually do well from the situation as the bubble burst and products were sold cheaply.
Similarly, in Europe the vast amounts of cash the mobile A mobile phone is an electronic device used for full duplex two-way radio telecommunications over a cellular network of base stations known as cell sites. Mobile phones differ from cordless telephones, which only offer telephone service within limited range through a single base station attached to a fixed land line, for example within a home or operators spent on 3G International Mobile Telecommunications-2000 , better known as 3G or 3rd Generation, is a generation of standards for mobile phones and mobile telecommunications services fulfilling specifications by the International Telecommunication Union. Application services include wide-area wireless voice telephone, mobile Internet access, video calls and licences in Germany A region named Germania, inhabited by several Germanic peoples, has been known and documented before AD 100. Beginning in the 10th century, German territories formed a central part of the Holy Roman Empire, which lasted until 1806. During the 16th century, northern Germany became the centre of the Protestant Reformation. As a modern nation-state,, Italy Italy (pronounced /ˈɪtəli/ ; Italian: Italia [iˈtaːlja]), officially the Italian Republic (Italian: Repubblica italiana), is a country located partly on the European Continent and partly on the Italian Peninsula in Southern Europe and on the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italy shares its northern, Alpine, and the United Kingdom, for example, led them into deep debt. The investments were far out of proportion to both their current and projected cash flow Cash flow is a generic term used differently depending on the context. It may be defined by users for their own purposes. It can refer to actual past flows, or to projected future flows. It can refer to the total of all the flows involved or to only a subset of those flows. Subset terms include 'net cash flow', operating cash flow and free cash, but this was not publicly acknowledged until as late as 2001 and 2002. Due to the highly networked nature of the IT Information technology is "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware", according to the Information Technology Association of America (ITAA). IT deals with the use of electronic computers and computer software to industry, this quickly led to problems for small companies dependent on contracts from operators.
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Thu, 02 Sep 2010 12:14:23 GMT+00:00
Seeking Alpha (blog) Many felt that fundamental valuation died during the bond crisis and during the dot com bubble as the internet created new money machines and revenue models ...
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a dozen years later after Eisner ponied up $385 million for the company he s making the movie as a way to shore up the brand It s too bad it could ve been a masterpiece Seriously Posted in Moving Pictures Tags
Thu, 18 Feb 2010 00:00:00 PST
Warner Video archive Wolfgang Ketterle on-demand video public events technology the Dot.com bubble the Internet the digital world venture capital ... mitworld.mit.edu.
