The Dotcom boom and bust

The Dotcom boom and bust.


The dotcom boom, or bubble, started in the early 1990’s and was caused by the increase in use of the internet as a commercial platform.  The invention of HTTP and web browsers made access to the World Wide Web possible and were responsible for the rapid growth of companies with services available to public and private companies and individuals.  As growth in the industry increased and people became more computer literate (and purchased more computers for access to the web), the full potential of the World Wide Web in almost unlimited applications from advertising to the service industry was recognized.  This led to investors and entrepreneurs believing in the possibility of achieving huge returns and allowed for businesses to be able to raise large amounts of money to start their companies.  Companies would sell stock at initial public offerings (IPO) and this seemingly unlimited amount of capital available led to companies that were worth millions of dollars on paper but not on actual assets or products.  It came to a point where companies like Infospace.com, a search engine that provides information and had mostly virtual assets, were worth more than Boeing, an aircraft company with immense physical assets. (1)  Stock prices for these virtual industries became unsustainable in the real world of physical products.   Many companies had more money going out than coming in, spending more on infrastructure that the cash flow in return.  “After venture capital was no longer available, the operational mentality of executives and investors completely changed.  A dot-com company's lifespan was measured by its burn rate, the rate at which it spent its existing capital. Many dot-com companies ran out of capital and went through liquidation. Supporting industries, such as advertising and shipping, scaled back their operations as demand for services fell. However, many companies were able to endure the crash; 48% of dot-com companies survived through 2004, albeit at lower valuations.”(2) 


This was a story of not looking far enough into the future to see the possible end result of a new type of technology that was available and the potential ramifications of not taking all possible consequences into account.  Investors and entrepreneurs alike were blinded by the apparent abundance of profit available and did not see the looming disaster staring them in the face.


1. Andrew Fry, Lecture, 20 November, 2019
2. Leslie Barron. "Lessons of Survival, From the Dot-Com Attic," New York Times, November 21, 2008.