Dotcom Bubble
The dotcom bubble, also known as the internet bubble, was a rapid rise in U.S. technology stock equity valuations fuelled by investments in internet-based companies during the bull market in the late 1990s. During the dotcom bubble, the value of equity markets grew exponentially, with the technology-dominated Nasdaq index rising from under 1,000 to more than 5,000 between the years 1995 and 2000. In 2001 and through 2002 the bubble burst, with equities entering a bear market.
Between 1995 and its peak in March 2000, the Nasdaq Composite stock market index rose 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 Qualcomm, lost a large portion of their market capitalization but survived.
Amazon and eBay were considered lightning, sparkling and shining bursts around the year 1990. As any other famous company, idea of an online bookstore under the name “Amazon” started in a garage in Seattle. It was none other than Jeff Bezos, a guy from the Wall Street, a highly organized and inquisitive being and a spreadsheet enthusiast, who was doing the task.
The idea of bookstore was simple. His views and key points summarized to a point that no library or bookstore can store every book present in this planet. Approximately, during the same timeline, Pierre Omidyar, just like any other coder, had a creative mind. He had an idea of building a site, where people can auction goods. Post Labour Day, later in around 1995, he started creating just a simple code in which we can create an advertisement, list up all the similar ones and bid in similar items of others like actual usual auctions happen, but in a virtual manner. At the time of their initiation of start-ups, we can observe that, Bezos had a very commercial mind and Omidyar, well, he was, earlier said, just a humble coder.
With Internet spreading like wild fire, Bezos and Omidyar started to create new models of commerce, or we can say E-Commerce. With the integration of Internet and emerging popularity of nimble, affordable and robust personal computers, they commercialized their initial idea and took a step forward, which proved to be a golden one for them.
Amazon considered its bookstore services to be of top quality. Any new business has to face initial losses and sacrifice many opportunities and profits at times. Similar to that, Bezos rightfully said that, actually, his fundamental focus was not profit, to result in favour of rapid growth and profit. This was Bezos’ strategy which result to one getting a business bigger and faster, at a faster pace, a very fast pace. This thought of his made him think it was definitely important to grow to a particular level of excellency to satisfy and maintain customers for a longer time period, maximizing the chance the customers do not churn.
The main issue that came up was, nobody paid a heed to company’s performance and progress. It is like a kid seeing a balloon, getting excited and not knowing that it will ultimately deflate or burst out. Common sense was no more common in this time period and blind investment was taking place every day, literally every day. The investors had a view, that companies having application with respect to the Internet will ultimately grow.
Ultimately, as we discussed about the inflating balloon, the prices rose approximately around five times. Then, the slow deflating balloon came between 2000 to 2002. And finally had to burst out in 2002. As we closely see, we can understand that, many companies died. Investors were facing a huge loss, like literally a huge loss. Where we can see the bad side of this happening, there was a good side, for some. Amazon’s loss was present, but gradually, the revenue of this enormous company increased exponentially. To elaborate, the stock price of Amazon after this period dropped drastically. But later on, the same stock price increased approximately 100 times. Thus, in the end, we can that, this example of bubble burst proved to be a huge lesson of human nature for every person who has faced it.
