A History of the Technology Industry

A look inside the dot com bomb

Dot Com Bomb

The dot bomb era was the period of time following the dot com "bubble" of the late 1990s and into 2001. During the dot com era, Internet-based businesses flourished. They were mostly funded by venture capital and banks looking to cash in on the Internet trend.

When the dot com bubble burst in the early 2000s, stocks sunk and hundreds of companies went completely out of business. Thousands of other companies laid off a large portion of their workforce.

It was a painful time in the technology industry, particularly for those who had planned their mortgages and/or retirements based on the prices of the technology stock they had been awarded or held in their stock portfolios. “Wealthy” investors lost their fortunes and millions were left wondering what had gone wrong.

Why the Bubble Burst

Nobody can pin down an exact reason for the crash, but it’s safe to say that numerous factors were at play. Some of the reasons often given for the dot bomb crash include the following:

  1. A general economic recession during this period.

  2. Findings of corporate corruption, and the subsequent bankruptcy, at several large companies including a few large technology companies.

  3. The terrorist attacks of September 11, 2001 (although the stock market was already crashing at this time, the attacks sped the drop even further).

  4. Stocks being overvalued and companies lacking enough of a sound business plan to back up those numbers and turn a profit.

    Mix all of these together and the result was a long term recession, which hit the technology industry particularly hard. Less than half of the affected dot com companies survived until 2004, and many of those that did became much more cautious about expanding. Others, however, bounced back magnificently, including some of today’s top tycoons like Amazon, Google, and eBay.

    General Timeline of Dot Com Bubble

    According to the World History Project timeline, this is how the bubble swelled and eventually burst:

    1994-1998: Large, Internet-based companies were founded one after the other, among them Amazon, Beverly Hills Internet, Craigslist, Pets.com, MSN, Flooz.com, Go.com, and more.

    1998: Interest rates fell, contributing to increased start-up capital (and therefore increased stock valuations). Venture capitalists moved quickly to invest.

    1998-1999: Taking advantage of the increased momentum, more companies started up, including Kozmo.com, Google, WebVan, MVP.com, etc.

    March 10, 2000: Bubble reaches peak as the NASDAQ reached a value over double that of the previous year.

    March 13, 2000: On Monday, the market opens at 4% lower than it was on Friday, due to several multi-billion dollar sell orders being processed at the same time. The drastic drop may have triggered a panic.

    2000-2002: Companies fold and go bankrupt: Boo.com, Pets.com, Webvan, eToys, Flooz.com, and many more.

    What It Means for Today

    Today, with the astonishing growth of one tech startup after another, it may seem like history is bound to repeat itself sooner or later. However, in the wake of the early 2000s bubble burst, a shift has occurred in the priorities of technology companies and workers that may help prevent future collapses of this magnitude.

    For example, greater importance was placed on base compensation and the value of a strong business plan. This was especially true amongst workers that were "burned" during the dot com bomb. Investors also tend to be more careful these days instead of jumping on board at the first sign of consumer interest.

    Forbes leaves us with a few lessons from dot com survivors, including the importance of pursuing a vision, staying relevant, adapting to user needs, building cross-industry relationships, and expanding via mergers or acquisitions if needed.

    Note: this article has since been modified by Laurence Bradford.