Internet Bubble

Table of Contents

Introduction.................................................................................................... 3

Background of the Internet Bubble..........................................................................4

The Companies that Survived and Those that Failed.................................................... 5

What Happened and Why?............................................................................................................. 7

How Could This Have Been Prevented?........................................................................................ 8

Summary and Conclusion.................................................................................... 8

References.................................................................................................... 10

Introduction

The World Wide Web made its debut in the 1990's as its creator Tim Berners-Lee launched what is now known today as the internet. Not long after the internet was born a new era, as well as a new economy would surface. This new era was known as the Dot-Com era, out of which numerous internet companies were started. It wasn't known in the beginning that the dot-com era would turn out to be another treacherous financial bubble that would startle the stock market and cost investors trillions of dollars.

Investors were throwing their money at these dot-coms because they believed these new companies would be worth millions of dollars as they would open up the internet for online commerce. In a sense this was a technological gold rush where many hopefuls banked on becoming overnight millionaires. The party was fun while it lasted for those who were raking in the dough. A new millionaire was made every minute and the NASDAQ was soaring to incredible heights.

The old adage "what goes up must come down" is all too true for the dot-com moguls and the economy it created. In March 2000 the NASDAQ peaked at an all-time high just over 5,000 before it came crashing down to 1,114. Internet companies overinflated their earnings and most of them didn't have sustainable business plans. Investors were out trillions of dollars and the bursting of this bubble would lead to a recession in the years following the collapse.

Pets.com has infamously become the mascot that represents the doom of the dot-com bubble. The company raised billions of dollars only to lose it all. Amazon.com took a beating in the collapse, but has since recovered and is now the largest online retailer for a wide variety of consumer goods. It is believed that the market will experience another internet bubble in the future.

Background of the Internet Bubble

Tim Berners-Lee was the man who started it all. The World Wide Web as we know it today is a result of this man's genius. In the 1980's this Oxford University graduate wanted to create a way that information could be shared electronically by anyone anywhere. He started out as a consultant with CERN when he created a program called Enquire. Though Enquire was not exactly the internet or the World Wide Web, it was the seed that sprouted the whole network. The idea was to link computers together so that they could talk to one another and the user could retrieve data from the network. It was in 1991 that Berners-Lee released his web browser on the internet (Internet Pioneers).

The birth of the graphical web browser, Mosaic, was the pioneer search engine for browsing the internet for information. It was created in 1992 by Marc Andreessen who later created Netscape. Mosaic preceded Netscape and Microsoft's Internet Explorer (Mosaic: The Original Browser). The use of these types of browsers made it easier for the average person to use the information superhighway to get to the information they were looking for. Before the 1990's this sort of technology was primarily used by laboratories, the government and the education sector due to the fact that the personal computer didn't become a popular product until the 1990's. Before the personal computer, using the internet had to be done in settings such as a lab because that's where the equipment was (Case, 2011).

The Internet Bubble was the dangerous financial bubble from 1995 through 2000 that created fast wealth and took the NASDAQ to its peak in March of 2000 when the market had soared to 5,048.62 (The dot-com Bubble). The plummet of the stock market brought the value of the NASDAQ down to around 1114.11 following the collapse (Beattie). The idea was to open up shop and grow as quickly as possible and make fast money. In fact, most companies were not even turning out a profit when they would become publically traded, but the minute that they hit the stock market their stock prices soared. This meant that investors were putting their money and faith into businesses that may not have had solid business plans or profits to support continuing growth.

The Companies that Survived and Those that Failed

The day after the NASDAQ hit its peak, it came crashing down and the internet bubble had finally popped. The five year steak of investing in over valuated initial public offerings crashed the market and closed the doors for several companies. However, some went on to survive. One of the companies that made it through the crash was Amazon.com. Founded in 1994, Amazon became the biggest online retailer on the internet. Although Amazon didn't see a profit until 2001, the company ultimately made out quite well following the bubble burst. Amazon became publicly traded in 1997 and its first shares were being sold for eighteen dollars. From 1997, and up until the bursting of the internet bubble, Amazon's stock climbed to over one hundred dollars a share. Following the crash the company took a heavy hit when its share price dropped below ten dollars a share (Folger, 2011). Today Amazon's stock is selling for more than three hundred dollars per share (Yahoo Finance).

Another company that managed to get out alive is Priceline.com. Founded in 1998, share prices went from sixteen dollars a share to eighty six dollars a share on the first day of the company going public in 1999. Following the internet bubble crash Priceline's stock followed the same pattern