The dot-com bubble (also known as the dot-com boom,[1] the tech bubble,[2] and the Internet

bubble) was a stock market bubble caused by excessive speculation in Internet-related companies

in the late 1990s, a period of massive growth in the use and adoption of the Internet.[2]
Between 1995 and its peak in March 2000, the Nasdaq Composite stock market index rose 400%,
only to fall 78% from its peak by October 2002, giving up all its gains during the bubble. During the
crash, many online shopping companies, such as Pets.com, Webvan, and Boo.com, as well as
several communication companies, such as Worldcom, NorthPoint Communications, and Global
Crossing, failed and shut down.[3][4] Some companies, such as Cisco, whose stock declined by 86%,
[4]
 and Qualcomm, lost a large portion of their market capitalization but survived, and others, such
as eBay and Amazon.com, also lost value but recovered quickly.

Contents

 1Prelude to the bubble

 2The bubble
o 2.1Spending tendencies of dot-com companies
o 2.2Bubble in telecom
 3Bursting of the bubble
 4Aftermath
o 4.1Job market and office equipment glut
o 4.2Legacy
 5Notable companies
 6See also
 7References
 8Further reading

Prelude to the bubble[edit]

The 1993 release of Mosaic and subsequent web browsers gave computer users access to
the World Wide Web, greatly popularizing use of the Internet.[5] Internet use increased as a result of
the reduction of the "digital divide" and advances in connectivity, uses of the Internet, and computer
education. Between 1990 and 1997, the percentage of households in the United States owning
computers increased from 15% to 35% as computer ownership progressed from a luxury to a
necessity.[6] This marked the shift to the Information Age, an economy based on information
technology, and many new companies were founded.
At the same time, a decline in interest rates increased the availability of capital.[7] The Taxpayer
Relief Act of 1997, which lowered the top marginal capital gains tax in the United States, also made
people more willing to make more speculative investments.[8] Alan Greenspan, then-Chair of the
Federal Reserve, allegedly fueled investments in the stock market by putting a positive spin on stock
valuations.[9] The Telecommunications Act of 1996 was expected to result in many new technologies
from which many people wanted to profit.[10]

The bubble[edit]
As a result of these factors, many investors were eager to invest, at any valuation, in any dot-com
company, especially if it had one of the Internet-related prefixes or a ".com" suffix in its
name. Venture capital was easy to raise. Investment banks, which profited significantly from initial
public offerings (IPO), fueled speculation and encouraged investment in technology.[11] A combination
of rapidly increasing stock prices in the quaternary sector of the economy and confidence that the
companies would turn future profits created an environment in which many investors were willing to
overlook traditional metrics, such as the price–earnings ratio, and base confidence on technological
advancements, leading to a stock market bubble.[9] Between 1995 and 2000, the Nasdaq Composite
stock market index rose 400%. It reached a price–earnings ratio of 200, dwarfing the peak price–
earnings ratio of 80 for the Japanese Nikkei 225 during the Japanese asset price bubble of 1991.[9] In
1999, shares of Qualcomm rose in value by 2,619%, 12 other large-cap stocks each rose over
1,000% in value, and seven additional large-cap stocks each rose over 900% in value. Even though
the Nasdaq Composite rose 85.6% and the S&P 500 Index rose 19.5% in 1999, more stocks fell in
value than rose in value as investors sold stocks in slower growing companies to invest in Internet
stocks.[12]
An unprecedented amount of personal investing occurred during the boom and stories of people
quitting their jobs to trade on the financial market were common.[13] The news media took advantage
of the public's desire to invest in the stock market; an article in The Wall Street Journal suggested
that investors "re-think" the "quaint idea" of profits, and CNBC reported on the stock market with the
same level of suspense as many networks provided to the broadcasting of sports events.[9][14]
At the height of the boom, it was possible for a promising dot-com company to become a public
company via an IPO and raise a substantial amount of money even if it had never made a profit—or,
in some cases, realized any material revenue. People who received employee stock options became
instant paper millionaires when their companies executed IPOs; however, most employees were
barred from selling shares immediately due to lock-up periods.[11][page  needed] The most successful
entrepreneurs, such as Mark Cuban, sold their shares or entered into hedges to protect their gains.

Spending tendencies of dot-com companies[edit]

Most dot-com companies incurred net operating losses as they spent heavily on advertising and
promotions to harness network effects to build market share or mind share as fast as possible, using
the mottos "get big fast" and "get large or get lost". These companies offered their services or
products for free or at a discount with the expectation that they could build enough brand
awareness to charge profitable rates for their services in the future.[15][16]
The "growth over profits" mentality and the aura of "new economy" invincibility led some companies
to engage in lavish spending on elaborate business facilities and luxury vacations for employees.
Upon the launch of a new product or website, a company would organize an expensive event called
a dot com party.[17][18]

Bubble in telecom[edit]
The bubble in telecom was called "the biggest and fastest rise and fall in business history".[19]
Partially a result of greed and excessive optimism, especially about the growth of data traffic fueled
by the rise of the Internet, in the five years after the Telecommunications Act of 1996 went into
effect, telecommunications equipment companies invested more than $500 billion, mostly financed
with debt, into laying fiber optic cable, adding new switches, and building wireless networks.[10] In
many areas, such as the Dulles Technology Corridor in Virginia, governments funded technology
infrastructure and created favorable business and tax law to encourage companies to expand.[20] The
growth in capacity vastly outstripped the growth in demand.[10] Spectrum auctions for 3G in the United
Kingdom in April 2000, led by Chancellor of the Exchequer Gordon Brown, raised £22.5 billion.[21] In
Germany, in August 2000, the auctions raised £30 billion.[22][23] A 3G spectrum auction in the United
States in 1999 had to be re-run when the winners defaulted on their bids of $4 billion. The re-auction
netted 10% of the original sales prices.[24][25] When financing became hard to find as the bubble burst,
the high debt ratios of these companies led to bankruptcy.[26] Bond investors recovered just over 20%
of their investments.[27] However, several telecom executives sold stock before the crash
including Philip Anschutz, who reaped $1.9 billion, Joseph Nacchio, who reaped $248 million,
and Gary Winnick, who sold $748 million worth of shares.[28]

Bursting of the bubble[edit]

See also: Early 2000s recession
On January 31, 1999, a total of two Dot-Com companies had purchased ad spots for Super Bowl
XXXIII.[29]

Historical government interest rates in the United States

Around the turn of the millennium, spending on technology was volatile as companies prepared for
the Year 2000 problem. There were concerns that computer systems would have trouble changing
their clock and calendar systems from 1999 to 2000 which might trigger wider social or economic
problems, but due to large-scale efforts to correct the bug before the year 2000, there was virtually
no impact or disruption.
On January 10, 2000, America Online, led by Steve Case and Ted Leonsis, announced
a merger with Time Warner, led by Gerald M. Levin. The merger was the largest to date and was
questioned by many analysts.[30]
On January 30, 2000, almost 20 percent [12 ads] of the 61 ads for Super Bowl XXXIV were
purchased by dot-com's (however this estimate ranges from 12-19 companies depending on the
source and the context in which the term "dot-com" company implies). At that time, the cost for a 30-
second commercial cost between $1.9 million and $2.2 million.[31][32]
In February 2000, with the Year 2000 problem no longer a worry, Alan Greenspan announced plans
to aggressively raise interest rates, which led to significant stock market volatility as analysts
disagreed as to whether or not technology companies would be affected by higher borrowing costs.
On Friday March 10, 2000, the NASDAQ Composite stock market index peaked at 5,048.62.[33]
On March 13, 2000, news that Japan had once again entered a recession triggered a global sell off
that disproportionately affected technology stocks.[34]
On March 15, 2000, Yahoo! and eBay ended merger talks and the Nasdaq fell 2.6%, but the S&P
500 Index rose 2.4% as investors shifted from strong performing technology stocks to poor
performing established stocks.[35]
On March 20, 2000, Barron's featured a cover article titled "Burning Up; Warning: Internet
companies are running out of cash—fast", which predicted the imminent bankruptcy of many Internet
companies.[36] This led many people to rethink their investments. That same
day, MicroStrategy announced a revenue restatement due to aggressive accounting practices. Its
stock price, which had risen from $7 per share to as high as $333 per share in a year, fell $140 per
share, or 62%, in a day.[37] The next day, the Federal Reserve raised interest rates, leading to
an inverted yield curve, although stocks rallied temporarily.[38]
On April 3, 2000, judge Thomas Penfield Jackson issued his conclusions of law in the case of United
States v. Microsoft Corp. (2001) and ruled that Microsoft was guilty of monopolization and tying in
violation of the Sherman Antitrust Act. This led to a one-day 15% decline in the value of shares in
Microsoft and a 350-point, or 8%, drop in the value of the Nasdaq. Many people saw the legal
actions as bad for technology in general.[39] That same day, Bloomberg News published a widely read
article that stated: "It's time, at last, to pay attention to the numbers".[40]
On Friday, April 14, 2000, the Nasdaq Composite index fell 9%, ending a week in which it fell 25%.
Investors were forced to sell stocks ahead of Tax Day, the due date to pay taxes on gains realized in
the previous year.[41]
By June 2000, dot-com companies were forced to rethink their advertising campaigns.[42]
On November 9, 2000, Pets.com, a much-hyped company that had backing from Amazon.com, went
out of business only nine months after completing its IPO.[43][44] By that time, most Internet stocks had
declined in value by 75% from their highs, wiping out $1.755 trillion in value.[45]
In January 2001, just three dot-com companies bought advertising spots during Super Bowl
XXXV: E-Trade, operator of an electronic trading platform, and two employment
websites: Monster.com and Yahoo! HotJobs.[46] The September 11 attacks accelerated the stock-
market drop later that year.[47]
Investor confidence was further eroded by several accounting scandals and the resulting
bankruptcies, including the Enron scandal in October 2001, the WorldCom scandal in June 2002,
[48]
 and the Adelphia Communications Corporation scandal in July 2002.
By the end of the stock market downturn of 2002, stocks had lost $5 trillion in market
capitalization since the peak.[49] At its trough on October 9, 2002, the NASDAQ-100 had dropped to
1,114, down 78% from its peak.[50][51]