Dot-com Buble

Did you know what happened to the Internet in its very early beginnings? When there were still no Google, Facebook and Wikipedia?

Between the late 90s and the year 2000, there was a general belief in the stock market, investors were sure that the internet would become the future of commerce and business. And, certainly, if we take a look at how the world is nowadays and how people’s lives are now, we can undoubtedly say they were not wrong. However, that belief led them to a huge financial bubble which caused the bankruptcy of millions of businesses and an increase in the unemployment rate. This bubble receives the name of “Dot-com Bubble” or “Internet Bubble”.

What happened exactly is: During the 1990s, due to the general hope in the concept of the internet and the huge change it would represent to everyone’s life, investors and venture capitalists started to spend money on those high-tech startups expecting for an increase in profitability and market value. These expectations about the internet got to such a point in which any company with the domain “.com” after its name would double or even triple its value in a short period of time.

Nevertheless, all that liquidity coming from the capital market obliged companies to run a non-stop growing race, forcing them to spend more on marketing and publicities than never before. Some of them spent as much as 90% of their budget on it. The profitability was no longer relevant in that case.

By 1999, 295 IPOs from a total of 457 were internet-related. Between 1995 and 2000, the Nasdaq composite stock market index rose 400%, and it got to its highest peak at 5048 on March 10th, 2000.

But then, the crash came. Right after the market’s peak, several of the market leading companies such as Dell and Cisco started to sell huge numbers of their stocks. It was the 1st sign which indicated that the bubble would explode soon. Within two years, the Nasdaq index fell down from its peak to 1,139.9 on October 4, 2002. And it did not recover until 2007, when the biggest financial crisis in history started.