The Dot-Com Bubble
Personal computers became increasing common in the 1990s, with Microsoft as the dominant software company, by dint of its association with then-behemoth IBM a decade earlier.
While computer hardware was becoming a commodity business, software took the spotlight as the star of the show, with hefty profit margins for those whose programs attained popularity. Companies contended to become the leader in their niche, and so reap the lion’s share of an increasingly profitable industry. Buyouts were common to eliminate smaller competitors.
It took over a decade after the Internet became a public network for large companies to catch on to its potential – existence proof of smug corporate arrogance in an industry that was supposedly stuffed with savvy men. The first wave of patents on Internet technologies was filed in 1993, followed by succeeding waves of increasing sophistication. So too with commercial entities trying to stand out in a growing crowd.
All the early Internet merchants were startups: companies with a nifty idea that managed to get venture capital funding so as to soar above the fluttering flock. Many companies had stock listings shortly after their web sites went up.
The bookseller Amazon.com started in 1994, as did Yahoo!, a search engine and Web portal. 1995 saw the birth of the auction site eBay.
Fed by a drastic reduction in the capital gains tax, the dot-com stock feeding frenzy started in 1997. Established companies could ratchet their stock price simply by prefixing an “e–” to their name or adding “.com” on the end.
Books-a-Million, a large US bookstore chain, saw its stock price soar 1,000% in 1 week after announcing an updated web site in November 1998.
Respected business publications like Forbes and the Wall Street Journal pimped new shiny nothings to a gullible public, despite many of the firms disregard for basic financial or even legal principles. Miniscule companies that had never made any profit sported stratospheric stock prices.
“Get large or get lost” was the wisdom of the day, so tiny companies flush with cash poured money into advertising. 16 dot-com companies shelled out $2 million apiece for 30-second spots during the 2000 Super Bowl. (The Super Bowl is the annual championship game for commercial American football.) By then the bubble was starting to burst. A year later, only 3 dot-coms ponied up for Super Bowl ads.
British startup Boo.com launched in autumn of 1999, then tore through $188 million in 6 months in a futile attempt to forge a global online fashion store. Boo went bankrupt in May 2000.
The dot-com stock purge was indiscriminate. Sturdy network hardware supplier Cisco saw its stock decline 86% in the rush for the exits.
Amazon.com’s stock went from $107 to $7 per share. A decade later it traded at over $500.