Dot-com bubble

The dot-com bubble (also known as the dot-com boom, the tech bubble, 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.

Between 1995 and its peak in March 2000, the stock market index rose really 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. Some companies, such as Cisco, whose stock declined by 86%, Amazon.com, and eBay, lost a large portion of their market capitalization but survived.

All great companies which are present today started up in garage and made millions in the coming years. Amazon the worlds biggest company started of by selling books online. Same way on the other end a guy sold products online by auction some things like joys, scrap items and celebrities signed underwear. Due to the rapid in stock values of is companies. Everyone in wall street were waiting to buy stocks. And few thought its not ideal companies to invest.

Internet use increased as a result of the reduction of the "digital divide" and advances in connectivity, uses of the Internet, and computer education.

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. 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. Between 1995 and 2000, the 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.

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. 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.

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. 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

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.

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.

Bursting of the bubble

On January 31, 1999, a total of two Dot-Com companies had purchased ad spots for Super Bowl XXXIII. Almost 20 percent 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.

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 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.

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. 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. The next day, the Federal Reserve raised interest rates, leading to an inverted yield curve, although stocks rallied temporarily.

By June 2000, dot-com companies were forced to rethink their advertising campaigns.

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. By that time, most Internet stocks had declined in value by 75% from their highs, wiping out $1.755 trillion in value.

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. The September 11 attacks accelerated the stock-market drop later that year.

By the end of the stock market downturn of 2002, stocks had lost $5 trillion in market capitalization since the peak.