Dot com bubble

Internet has indeed changed our lives. From shopping to social media, the internet has become infused with our lives. It is almost impossible to imagine a day without the internet. It has increased online e commerce business and has fuelled many startups. It can be said that the internet has made our lives more comfortable.

But as entrepreneurs are blindly trusting the internet to fuel their business there is also a fear caving in which is ” Will the history repeat itself? Is another dot com bubble on its way?” To know the answer let us first understand what is/was the dot com bubble.

The Dot com bubble

dot com bubble
Bubble
Photo by Zdeněk Macháček on Unsplash

A bubble in economics is used to define a situation in which there is a rapid escalation in assets price due to inconsistent views of the future. Like a normal bubble, an economic bubble is also followed by deflation.

The dot com bubble is one of the first bubbles encountered in history. Some of the factors that led to this are as follows:

  • With the release of Mosaic web browser in 1993 followed by many other web browsers like Netscape, Navigator it became easy for the people to access the World Wide Web. The use of computers also increased from 15% to 35% as the computer became a necessity for the people. This marked the beginning of the Age of Information technology and new companies started flourishing.
  • Lower interest rates and The Telecommunications Act of 1996 also made people to start investing in technological companies.
  • The success of the initial public offerings by Netscape Communications, Yahoo and others which went public at the same time also boosted the confidence of people to invest in such companies. Companies started to spend lavishly to look big rather than thinking of the profit.

Due to these, people started investing largely in any company that had a .com following its name. The investment banks also encouraged such investments as they were earning large profits from the initial public offerings. It became easy for promising dot com companies to go public via an IPO and raise a substantial amount of money even if they had not made any profit. Companies incurred losses due to advertising as they preferred growth over profit. Thus the bubble started to grow bigger.

dot com bubble
NASDAQ Graph during the dot com bubble period

At the beginning of 2000 interest rates were again raised. On March 10, 2000, the NASDAQ Composite stock market price peaked at 5048. Stock Market became volatile. Investment capital began to dry up. As the bubble burst, many companies like pets.com incurred huge losses and could not recover. But some companies like Amazon and ebay recovered and were able to expand and dominate the market.

Are we heading towards another dot com bubble?

This may not be the time for dot com but with the increasing use and popularity of smartphones , the craze for developing apps has surely gone up. This has brought up the fear of a tech bubble rather than the dot com bubble. But if people learn from the past mistakes it can surely be avoided. At this stage it is difficult to predict anything about a possible tech bubble in the near future. Please keep reading this blog to know more.

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