eWEEK at 30: Web Expansion Drives Frenzied Dot-Com Boom and Bust

By Todd R. Weiss  |  Posted 2014-02-10 Print this article Print

Many of these companies caught the imagination of investors when they issued their initial public stock offerings. Flush with investor cash, these companies often spent wildly and watched their stock prices rise to amazing highs—all before they ever turned a dime in profits.

This all took place from 1997 to 2000, a period when investors were seized by "irrational exuberance," a term coined in December 1996 by Alan Greenspan, former Federal Reserve chairman. It became a catchphrase of the era to describe the mindless optimism that gripped stock market investors as they drove the stock prices of many dot-com and high-tech companies to stratospheric heights.

While his comments caused an immediate but short-lived drop in stock market values, the dot-com stock boom still had several years left to run.

Investors came to believe that e-commerce had somehow changed the laws of economics and the good times would last indefinitely. At that point, it should have been clear that the crash was coming soon.

But many investors didn't realize what was going to happen before it was too late. What goes up must come down, and the market reacted accordingly when it became clear that many of the dot-com businesses were rapidly burning through all their venture and IPO cash without a hope of turning a profit or even surviving as going concerns.

Watching that dot-com boom and its resulting crash was one of the biggest stories covered by eWEEK in the last 30 years. The dot-com crash started in late 2000 and continued through 2001 as many of the once high-flying dot-com ventures collapsed and billions of dollars in shareholder value simply evaporated.

The evidence of the crash can be found in the Nasdaq stock exchange index. Many high-tech stocks are traded on Nasdaq, as were many of the dot-com startups.

The Nasdaq Composite index hit a high of 5048 on March 10, 2000. But by April 4, 2001, the index had dropped to 1638, a loss of 71 percent of its previous value. The Nasdaq has yet to return to that previous peak, although it hit 4176 in late December 2013.

While the dot-coms obviously can't be blamed for all of that loss, the failure of a number of these companies was a factor that soured investors on the broader market and convinced them to pull their money out of stocks. The failure of so many dot-coms also hurt the broader technology industry as computer hardware, software and network equipment vendors also saw their sales slump because so many dot-com companies suddenly went out of business.

So why did this happen and could it happen again?

We asked several IT analysts for their thoughts about the dot-com rise and fall to get their perspectives on the early business climate online.

Dana Gardner, principal analyst of Interarbor Solutions, told eWEEK that it's important to remember that the dot-com bust didn't happen in a vacuum, but also came at a time when there were big changes in the telecommunications industry.



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