Dotcom Bubble

What Was the Dot-Com Bubble?

The infamous "website" bubble — otherwise called the tech boom or internet bubble — was a period from around 1995 to around 2001 during which internet-related tech companies attracted a massive amount of attention from venture capitalists and traditional investors.
This flood of money combined with the exploding popularity of the internet in general caused the web sector to expand rapidly in terms of valuation over the course of a few years despite many companies lacking concrete paths to profitability. Low interest rates in the late 1990s made debt financing easier to acquire, further fueling the internet industry's unchecked growth.
Eventually, around late 2000, these streams of easy money dried up, and the industry imploded, making numerous tech companies go under and ushering in a new bear market that would last for around two years and affect the entire stock market — in addition to the technology sector.

How Did the Dot-Com Bubble Form?

In the early 90s, the advent of web browsers made the internet substantially more accessible for the average consumer. Once rare, computers began to appear in more and more households in the U.S., eventually becoming somewhat of a necessity. As the popularity of computers and the internet grew, many new web companies emerged to carve out their slice of the rapidly expanding information technology and online commerce industries.
In the late 90s, low interest rates made speculative equity investments more attractive than bonds, and at the same time, innovative internet companies grew in popularity among retail investors, professional traders, venture capitalists, and institutional investors alike. When the Taxpayer Relief Act of 1997 passed, the top capital gains tax rate was lowered, providing yet another incentive for equity speculators to pour money into the fledgling internet industry.
Investment banks earned massively by facilitating IPOs for one tech company after another, and idealistic investors threw fundamentals like P/E ratios through the window and pumped money into youthful website companies (the greater part of which still couldn't seem to make money) for fear of missing out on the digital gold rush that was sweeping Wall Street.
This deluge of money acted like a bellows, blowing up the untested internet technology industry into a overvalued bubble ripe with surface tension and ready to burst.

When and Why Did the Dot-Com Bubble Burst?

It's generally hard to identify a single catalyst that causes the bursting of an asset bubble, however on account of the internet bubble, two factors seem to have played at any rate some part in the industry's rapid decline, which began after the tech-heavy Nasdaq composite peaked on March tenth, 2000.
The principal factor was rising interest rates. The Federal Reserve raised the fed funds rate (which informs most other interest rates) several times over the course of the years 1999 and 2000. Higher interest rates tend to motivate investors to move money out of more speculative assets (like internet company stocks) and into interest-paying assets like bonds.
The second factor was the onset of a recession in Japan in March of 2000. News of this recession spread fast and led to a wave of fear that triggered a worldwide selloff, moving even more money out of speculative equities and into safer, fixed-income instruments like bonds.
These two factors, among others, helped catalyze the bursting of the overinflated internet bubble. Internet stocks began to lose value, which spread fear among investors, thus causing extra selling — this self-reinforcing process is known as capitulation, and the selloff continued until the Nasdaq hit its base around October of 2002.

How Long Did the Bubble Last? How Long Was the Bear Market That Followed?

Bubbles — including the website bubble of the late 1990s — don't really have definite beginning dates, yet accepting the bubble "started" sometime around 1995 and ended when the Nasdaq composite peaked in March of 2,000, you could say the website bubble grew for around five or six years before bursting. The bear market that followed lasted around two years.

Which Companies Survived the Dot-Com Collapse?

While numerous tech companies bit the dust during the bubble's collapse, some persevered through the turbulence and bounced back in the years that followed. As per the New York Times, something like 48% of the companies involved in the asset bubble survived the crash, however most still temporarily lost the largest part of their value. The following are a few examples of now-successful companies that survived the doomed tech boom.

• Adobe Systems
• Amazon
• ARM
• ASML
• Booking Holdings (Priceline, Kayak, CheapFlights, etc.)
• eBay
• IBM
• Intuit
• Oracle
• SanDisk

Which Companies Went Under During the Dot-Com Crash?

Many companies weren't so exceptionally fortunate as those listed above. The following are a few internet players that met their end when the tech bubble burst or before long.

• Boo.com
• Global Crossing
• Northpoint Communications
• Pets.com
• Webvan
• Worldcom

How Did the Dot-Com Crash Affect the Economy? Did It Cause a Recession?

What defines a recession varies depending on who you ask, yet it would certainly be safe to say that the bursting of the internet bubble led to a pretty severe bear market. As per most analysts, the website crash caused a gentle recession, yet its effects were not nearly as tragic as those of the subsequent 2008 recession caused by the implosion of the mortgage-backed securities market and the housing bubble.
Of course, numerous who worked in the tech sector became unemployed as the businesses they worked for saw their financing dry up. Adjacent industries, like advertising, were additionally affected as bombing tech companies stopped pumping money into elaborate marketing efforts. Overall, it took the market around two years to get once more into bull territory after the two-year website recession (or bear market — whichever you prefer).

Features

• The Nasdaq, which rose five-overlap between 1995 and 2000, saw a practically 77% drop, resulting in a loss of billions of dollars.
• The bubble additionally caused several Internet companies to become penniless.
• Equities entered a bear market after the bubble burst in 2001.
• The value of equity markets grew exponentially during the dotcom bubble, with the Nasdaq rising from under 1,000 to more than 5,000 between 1995 and 2000.
• The dotcom bubble was a rapid rise in U.S. technology stock equity valuations fueled by investments in Internet-based companies in the late 1990s.