Many people have heard of the Dot Com Bubble today, but a lot of people still don’t understand exactly how it happened and why, which does not bode well for the future. There will be other tech booms in the future and other tech busts, and it makes sense to try to prepare for them as well.
The World Wide Web, which is what people really tend to mean when they say ‘the Internet,’ was officially invented by Tim Berners-Lee in 1989. When people interact with the Internet today, they are using the World Wide Web, which is technically not the same as the ‘Internet.’ However, the Web did not become fully commercialized right away.
When the Mosaic Web browser was released in 1993, the commercial growth of the Internet started to become much more prominent. Really, the commercialization of the Internet and the dawn of mass Internet commerce began around this point. However, the Dot Com Boom itself did not really get into full force until 1997. The Dot Com Bubble was characterized by the unprecedented growth of companies that came to be known as Dot-com companies.
There are still a companies today that are referred to as ‘dot-com companies.’ However, in many cases, the people who say that are going to date themselves. The dot-com companies of the late 1990’s were more or less formed in order to take advantage of the remaining venture capital in the markets that they entered. They often had little more than a great domain name and a basic idea. They hoped people would invest in what they had in order for them to rise through the ranks, but many of them would have no real idea of how to produce anything even if their companies could have had any substance.
One of the reasons why the stock market has always been prone to crashes, and why the dot-com bubble burst in the first place, is that the stock market traders produce nothing. The dot-com companies did not generate any new wealth or capital. They managed to convince other people that their domain names were valuable, sometimes artificially inflating their own value, but they weren’t actually going to create anything of lasting value that way. Many companies become hugely overvalued during this period as more and more people were encouraged to invest in companies that had no real chance of succeeding long-term just because they had become temporarily overvalued.
When American Online attempted to merge with Time Warner back in 2000, they helped to trigger the early recession of the 2000’s. When WorldCom was found to have exaggerated its profits, its stock dropped so far and so quickly that it has become one of the most infamous cases of bankruptcy in history. Several other dot-com companies went through the exact same process, leaving a trail of immediate victims of the tech bubble and ending the dot com boom for good. While around 48 percent of dot com companies did survive through 2004, the dot com bubble burst, and many of the existing companies either completely fell or found themselves getting bought out for low prices by members of the old economy.
The Internet companies of today will always produce something. There will be recessions in the future, but there may never be anything akin to the Dot Com Bubble, which was at least partly a product of an era were the Internet was new, poorly understood, and full of speculators. The Internet has been around for a generation now and it is fully domesticated. The era of ignorant optimism is over.