10 Years On: When the bubble burst

The Dot-com bubble burst

On 10 March 2000, the NASDAQ composite peaked at 5132.52. The burst of the dot-com bubble was imminent and the NASDAQ would crash so spectacularly that it would never fully recover from the burst. Even today, it still sits at about 54 percent below that level.

The bursting of the dot-com bubble, a period that had lasted from roughly 1995 to 2000, and saw stock markets in industrialized nations see their equity value rise rapidly from the growth in Internet sector and related fields.

In October 1999, the six biggest tech stocks of that time - Microsoft, Intel, IBM, Cisco, Lucent and Dell - boasted a combined value of US$1.65 trillion, or 20 percent of the US gross domestic product (GDP).

At the time, anyone with an Internet name got funded and taken public in quick succession: with more than 400 of them popping up in total between 1995 and 2000. In fact, by 1998, Internet community site Globe.com had set a record with an IPO that sky-rocketed 606 percent on its first of trading: a statistic that goes to show just how much was being invested in the IT bubble.

Globe.com was delisted from the NASDAQ in April 2001.

The epitome of the American Dream

By 2000, the dot-com bubble looked like something from the pages of a Hollywood movie script. Everyone, literally everyone, with a website was set to become an instant billionaire as investors pumped more and more money into dot-com start-ups at a far quicker and less measured way they ever would have done for any regular business.

But the bubble, as highlighted by the fates of Globe.com and the like, was built to a literally astronomical size at an alarming rate, and the bubble spectacularly popped.

Billions of dollars suddenly disappeared as the novelty factor of the dot-com industry began to wane. In short, the new technology that was so heavily populating the marketplace lead many investors to run to their wallets in fear. So concerned with the being left behind by the technology, they overspent heavily and it soon became impossible to value the companies that were popping up across the industry landscape - resulting in gross overvaluing.

Monopolising

The problem was that, at some point, these new companies would eventually have to start to turn a profit, and as so many were being started so quickly, all with the business plan of monopolising their particular marketplace, there were always going to be casualties. Ultimately though, the entire business model of the dot-com was massively flawed: as soon as companies started to run out of initial capital they would begin folding, and the subsequent demise of the dot-coms triggered a panic that saw shares being sold, investors pulling out and businesses disappearing simply overnight.

Physically the bubble burst on 10 March 2000 - 10 years ago today. Rising interest rates in the US saw reduced spending, before a massive multi-billion dollar simultaneous sell order from leading technology companies such as Dell, Cisco and IBM triggered a chain reaction of investors liquidating their shares.

The initial sell orders are believed to be just a coincidental event, but the panic it caused led to a drop in the NASDAQ that simply has never been recovered since. Not once.

What's more, suggest analysts that even today the aftershocks of the crash can still be felt. Eric Janszen, who chronicled the demise of the dot-com bubble on his website iTulip.com (the name comes from the Danish tulip craze of 1637, the first recorded speculative bubble), commented on the 10 year anniversary of the crash by saying: "The fields that we used to be planting that five years later would be creating high-paying competitive jobs are not being planted, and that's been one of the negative long-term factors of this bubble crash."

Another Crash?

But have we learned our lesson?

The hype around the current social media sites shares eerie similarities to the late dot-com bubble. With the Dow at a record high, young upstart entrepreneurs are coining it with their dot-com creations, and large media companies are looking at these creations, viewing them as their next acquisition. It almost seems like 1999 with big media companies throwing huge amounts of cash at the hot new sites on the internet, sites that had impressive traffic figures but not-so-impressive profit-and-loss statements.

Hopefully this time around things will be different. The internet is 10 years older and companies have developed a more aware and mature online advertising market with more realistic business models for online advertising. There is also a degree of skepticism about the success of the next big thing (Facebook, Twitter etc) following the crash 10 years ago.

So have we learned our lesson? Only time will tell.

Matthew Buttell

Matt Buttell graduated from Bath Spa University in 2006. Since then he has written for several publications, before moving to the web. He now writes solely for the internet, continuing to cover key business issues while managing his own personal blog.

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