What is – The Dot-Com Bubble?
The Dot-Com Bubble Bursts
„Ayear ago Americans could hardly run an errand without picking up a stock tip. Day-trading manuals were selling briskly. Neighbors were speaking a foreign tongue, carrying on about B2B’s and praising the likes of JDS Uniphase and Qualcomm. Venture capital firms were throwing money at any and all dot-coms to help them build market share, never mind whether they could ever be profitable. It was a brave new era, in which more than a dozen fledgling dot- coms that nobody had ever heard of could pay $2 million of other people’s money for a Super Bowl commercial.
What a difference a year makes. The Nasdaq sank. Stock tips have been replaced with talk of recession. Many pioneering dot-coms are out of business or barely surviving. The Dow Jones Internet Index, made up of dot-com blue chips, is down more than 72 percent since March. Online retailers Priceline and eToys, former Wall Street darlings, have seen their stock prices fall more than 99 percent from their highs. Unlike the worrisome decline in the stock prices of solidly grounded technology firms due to a slowdown in profits, the sharper plunge taken by some of the trendy Internet companies that had no earnings in the first place has proved comforting to those who believe in the rationality of markets. After all, many of them lacked one key asset — a sensible business plan. Even the most traditional brokers and investment banks set aside the notion that a company’s stock price should reflect its profits and urged investors not to miss out on the gold rush. At the craze’s zenith, Priceline, the money-losing online ticket seller, was worth more than the airlines that provided its inventory.
The current sense of despair in the dot-com universe may be as overdone as last year’s euphoria. The Internet, after all, really is a transforming technology that has revolutionized the way we communicate. What recent months suggest, however, is that it may not be an indiscriminate, magical new means of making money.
Woeful tales of visionary innovators failing to capitalize on their revolutionary new technology are not new. The advent of railroads, the automobile and radio, to name other watershed innovations in history, also led to many a shattered dream. The number of failed auto makers far exceeded the number that ultimately succeeded.
In this holiday season, the financial implosion of so many dot-com retailers seems particularly cruel. It is not as if consumers do not appreciate shopping online. Online sales this season are expected to be about two-thirds greater than last year. But it is not the innovators who are reaping all the benefits. Online retailers are losing market share to the likes of Wal-Mart and Kmart. This holiday season, online sales of traditional retailers, initially hesitant to embrace the Web, will outpace those of the pure dot- coms for the first time.
The endearing Pets.com sock puppet is a fitting mascot for the demise of the dot-com mania. Less than a year ago the spokesdog for the online pet- supply retailer was starring in some of those $2 million Super Bowl commercials. Now, in the wake of his master’s bankruptcy, he is looking to shill for another company — one that can actually make money.“