What Was The Dotcom Crash?

Finance & Technology

- Thejendra Sreenivas

What is the Dotcom crash? - The dot-com bubble or crash, also referred to as the Internet bubble, is the period between 1995 and 2000 when several investors pumped tons of money into Internet-based startups hoping to reap massive profits. These speculative investments in dot-coms recklessly drove up equity markets. For example, NASDAQ Index rose from less than 1,000 in 1995 to more than 5000 by 2000.

In the rush to become rich soon and cash in on the Internet boom, many investors ignored traditional investment safeguards like a company’s share price compared to its earnings per share. Instead, they subscribed to business models that created brand awareness and market share quickly. For this to happen companies had to offer services or products at steep discounts or even free. Low-interest rates from 1995 to 1999 also helped drive up the number of funds invested in dot-coms. Rapidly growing tech infrastructure and the spread of the internet-enabled people in developed countries to easily get online. Also, overnight fortunes made by some startup founders when they went public fueled the exuberance.

Share prices of dot-com companies were increasing faster and higher than their peers in the real sector due to speculation caused by the excitement of the internet business model. This led to an over-valuation of internet firms relative to their intrinsic value. But all these were too good to be true and soon the bubble burst.

Several online and technology companies declared bankruptcy and faced liquidation. Notable examples were Pets.com, 360Networks, Boo.com, eToys, etc. However, other internet-based companies like Amazon, eBay, etc., survived due to their products and services. Trillions of dollars were lost in market value during the crash of the stock market between 2000 to 2002. In addition, the financial damage due to the 9/11 terrorist attacks led to widespread layoffs in the technology field.