A History of the Technology Industry
The years following the bursting of the dot-com bubble in the early 2000s sometimes is called the dot-bomb era. Dot-com businesses grew rapidly in the late 1990s through 2001, and internet-based businesses flourished. They were funded mostly by venture capitalists and banks looking to cash in on the internet trend.
When the dot-com bubble burst in the early 2000s, stocks sunk and hundreds of companies went completely out of business. Thousands of other companies laid off large portions of their workforces.
It was a painful time in the technology industry, particularly for those who had planned their mortgages and/or retirements based on the prices of the technology stocks they had been awarded or held in their portfolios. “Wealthy” investors lost fortunes, and millions were left wondering what had gone wrong.
Why the Bubble Burst
Nobody can pin down an exact reason for the crash, but numerous factors were at play. Some of the reasons often given for the dot-bomb crash include:
- A general economic recession during the period.
- Findings of corporate corruption, and the subsequent bankruptcy, at several large companies, including a few large technology companies.
- The terrorist attacks of Sept. 11, 2001. The market already was in decline, but the attacks sped the drop even further.
- Stocks being overvalued and companies lacking enough of a sound business plan to back up those numbers and turn a profit.
Mix all of these together and the result was a long-term recession, which hit the technology industry particularly hard. Less than half of the affected dot-com companies survived until 2004, and many of those that did became much more cautious about expanding. Others, however, bounced back magnificently, including some of today’s top tech companies, like Amazon, Google, and eBay.
General Timeline of the Dot-Com Bubble
The World History Project timeline describes the order of events that show how the bubble swelled and eventually burst:
- 1994-1998: Large, Internet-based companies were founded one after the other. Among them were Amazon, Beverly Hills Internet, Craigslist, Pets.com, MSN, Flooz.com, Go.com, and more.
- 1998: Interest rates fell, contributing to increased start-up capital and therefore increased stock valuations. Venture capitalists moved quickly to invest in tech companies.
- 1998-1999: Taking advantage of the increased momentum, more companies started up, including Kozmo.com, Google, WebVan, MVP.com, etc.
- March 10, 2000: Bubble reaches its peak as the NASDAQ reached a value more than double that of the previous year.
- March 13, 2000: On Monday, the market opened at 4% lower than it had been on the previous Friday due to several multibillion-dollar sell orders being processed at the same time. The drastic drop may have triggered a panic.
- 2000-2002: Companies fold and go bankrupt, including Boo.com, Pets.com, Webvan, eToys, Flooz.com, and many more.
What It Means for Today
Today, with the astonishing growth of one tech startup after another, it may seem like history is bound to repeat itself sooner or later. However, in the wake of the early 2000s bubble burst, a shift occurred in the priorities of technology companies and workers that may help prevent future collapses of this magnitude.
For example, greater importance was placed on base compensation and the value of a strong business plan. This was especially true among workers that were burned when the bubble burst. Investors also tend to be more careful these days instead of jumping on board at the first sign of consumer interest.
When the dot-com bubble burst, it served as a reminder that sound business and investing principles need to be followed for long-term success—no matter how hot a new trend might be. Entrepreneurs still need to pursue a vision, stay relevant, adapt to user needs, build cross-industry relationships, and expand via mergers or acquisitions if needed.