Twenty years ago today one of the most seminal moments in the tech world happened. On March 11, 2000 the dot-com bubble burst. The day before Internet-based companies peaked in value before a massive blood letting of capital the following day that lasted for over two years. Some companies managed to survive, others became a shell of what they had been while many others were forced to close their doors. So, today we look back on one of the most important moments in tech history and many people who lived through it still shudder when it is brought up.

The Internet Was The Shiny New Toy

Using the Internet for commerce was relatively new in 2000. Mosaic had brought the Internet to the world in 1993 and the number of people who had personal computers in their home was expanding at an incredible rate. By 2000 about 54% of households in the US had a personal computer in their home

Taking the commercial world to the Internet was the next logical step for many entrepreneurs and raising capital for these ventures was made easier thanks to legislation passed by Congress in 1997 and signed into law by President Bill Clinton which lowered capital gains taxes thus making it easier for people to make more investments based on speculation. As a result many investors were eager to invest in any business that had a .com in its name as this was the next great investing frontier.

Millionaires and Billionaires Made Overnight

Things seemed good and for several years it was good. IPOs raised huge amounts of money allowing company leaders and even many employees to become millionaires overnight. Tech corridors like the Dulles Tech Corridor in Virginia sprung up almost overnight to provide cheap land and services for the companies to operate out of. 

Elaborate business facilities were created and 16 dot-com companies purchased 30 second ads during Super Bowl XXXIV for $2 million a piece. One startup, which sold unsold airline tickets with William Shatner as its spokesman became the fifth largest Internet brand behind only AOL, Yahoo, Netscape and Amazon. Priceline is still around, though Shatner sold off his shares in the company before the bubble burst for a disputed amount.

Cracks Were Forming

But there were problems. Most companies were trying to grow as fast as they could but were operating at net losses. They spent heavily on advertising to build brand awareness in the hopes that they would become profitable in the future. Growth was more important and companies spent on lavish parties to try to outdo each other and this growth attracted droves of investors since these companies promised to change the world. Investment was not made in infrastructure and for whatever reason the more money that was lost the more successful a dot-com business was viewed as being.

The bubble did not burst immediately as there was no lack of supply of dot-com companies to invest in and it seemed like there was no lack of new investors. Most people knew that this kind of business and growth was unsustainable but they did not want to admit it, at least not publicly. They had no idea how big the bubble was much less when it would burst. On March 10, 2000 the NASDAQ peaked at 5,048.62, a level it would not return to until 2015. 

Bursting The Dot-com Bubble

The year 2000 did not start well for tech companies even after the Y2K bug proved to be less serious than anticipated thanks to a concentrated response from the tech industry. In February the chairman of the Federal Reserve Alan Greenspan announced plans to raise interest rates again after raising them three times in 1999 which created volatility on the stock market and would adversely affect the dot-com company’s borrowing ability. Wall Street analysts began to advise their clients to lighten up on tech stocks after a weak group of dot-coms made their IPO in late 1999. In fact insiders were already selling their shares off. In March Japan entered a recession and a few days later Yahoo! and eBay’s proposed merger fell apart promoting the NASDAQ to fall over 2%. 

The proposed raising of interest rates happened on March 21 prompting financial analysts to predict the imminent bankruptcy of many of these companies. Tech consulting company MicroStrategy was the first hit following a revenue reassessment statement. Their stock had debuted at $7 per share, rising to $333 per share and it lost 62% of its value in one day. They did survive following fraud charges brought by the Securities and Exchange Commission after settling with the SEC that December and do still exist today but is a shell of what it used to be.

A Bloodletting

The bloodletting continued into April as many investors cashed out their stock to pay their income taxes. At the same time Microsoft was facing an antitrust lawsuit which saw their stock plummet 15% in one day. Following the announcement from the government, Amazon-backed filed for bankruptcy in November when it ran out of capital and by that point 75% of all stock value was wiped out in tech companies.

Things got worse with the September 11 attacks followed by accounting scandals involving large companies like Enron a month later. The downturn finally ended a year later with over $5 trillion dollars lost in investment capital. The fallout for some executives continued as several were convicted of fraud for misusing shareholder money and several investment firms were hit with large fines. A large number of programmers were laid off creating a glut of unemployed programmers with some anecdotally going back to school to learn accounting. Enrollment in computer related fields declined at colleges and universities around the country.

Dot-com Companies Lost To History

The dot-com bubble was full of companies that have been lost to the dustbin of history like 360networks,,,,, Healtheon, Liquid Audio, Pixelon and Think Tools. Some, like Yahoo!, Amazon and eBay survived. Some executives like Mark Cuban who had the foresight to sell to Yahoo! in 1999 for $5.7 billion in stock are still very wealthy today.

Could It Happen Again?

There is the possibility that it could happen again. When it came to Internet companies the 1990s was somewhat of a Wild West time with little regulation and oversight. That has changed but we are seeing the same thing with the social media industry today. Many platforms like Facebook, Twitter, LinkedIn and more are publicly traded and there seems to be little regard for many of them as to how profitable they are and how they generate revenue and the same can be said for some other Internet-based services like Groupon who are struggling to show long-term profitability. 

Many investors have bought into the hype regarding these companies and it could wind up costing those investors once again. At the very least though a bubble bursting now may not be quite as dangerous but it could still hurt.

The Average Person Hit Hardest

That was of course not true in 2000 for many people who watched their investments dry up almost overnight and then watched the elites and experts who could have stopped it or warned them walk away scot free with their investments intact. It has led to a change in attitude by many investors and potential investors that the game is rigged against them and this was reinforced by the collapse of the housing bubble less than a decade later

It has also made many investors cynical when an entrepreneur comes to them with an idea that could change the world. It has also perhaps kept some entrepreneurs from trying and reliving the dot-com bubble burst themselves. 

Some Positives

There were a few handfuls of positives that came out of this, other than of course the requisite legislation that would help to try to prevent this in the future. While infrastructure was ignored by many dot-coms, telecommunication companies needed to invest heavily in that and laid over 76 million miles of fiber optic cable and that infrastructure would allow the country to move from dial-up Internet connections to high speed connections. There was so much infrastructure laid that it forced ISPs to offer high speed services very cheaply, something that we still enjoy today.

The tech industry also proved to be viable and it encouraged people to go online. More people were online in 2010 as compared to 2000 and there were far more websites in 2010 as well. These companies did get people online and proved that the Internet could be a valuable tool for a company and for customers. 

Lessons To Learn

As we observe the 20 year anniversary of the dot-com bubble bursting we can take several lessons from it. The main one is that while advertising is very important to generate growth a good product or service can be even better, so starting small with a better product is the best way to go. At the same time making sure that customers know what you do is important. Throwing out tech buzzwords is great but if no one knows what you do (or could do) for them they will be wary of doing business with you. 

Just remember, executing your core competencies with an artisanal organization for meta learning to quantify a value-added playing field just is what it is. If you understand what that means, perhaps you should spend more time developing your product and less time on corporate buzzwords so you can avoid the next dot-com burst.

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