The cover was an artwork made by Dane Marc Villanueva. It is inspired by the phrase, “we are living like hell in this wild wild world!” THE INTEREST chose this artwork to show the effects of the Internet bubble to the economy and to the pockets of even the normal people.
“We live in a hell called the Wild Wired World”
dot.com BUBBLE in a nutshell THE BUBBLE history
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CONTENTS CONTENTS
.COM
BUBBLE
CRISIS
IN A NUTSHELL
On March 10, 2000, the NASDAQ composite of high-tech stocks broke through the 5000 points barrier just two months after it first went beyond the 4000 mark. Now, 10 years after, its easier to be wise. Let’s look back at lessons learned from the Dot.com bubble, but before anything else, let’s see how the bubble looked in a nutshell. There are two things we should know to understand the Dot.com bubble. Remember Y2K? Unlike the present financial crisis, nothing blameworthy happened. The Y2K virus had a great effect on the Dot.com bubble. In case you forgot or were living under a rock at that time, let me refresh your memory. Back before the year 2000, programmers with little foresight wrote a lot of software with a two-digit standard for years in dates. Thus, the problem was, if we entered year 2000, the computers and systems would make the erroneous assumption that the year was 1900.
Everyone feared that long-working systems would break down when the "...97, 98, 99, 00..." ascending numbering assumption suddenly became invalid. There was panic, mostly baseless, that the break down or malfunctioning of these systems would result in missiles firing themselves, airplanes and satellites suddenly crashing, electric grids shutting down – complete and utter chaos in the world. Although much of these were groundless predictions, most of the industrial world and information society did not want to risk it. And so, starting around 1998, the technology sector had a huge upturn in business. New machines with Y2K compliant software were being produced by companies like Dell, HP, and others – this was what the consumers saw. Behind the scenes, the industry was also buffing up their artillery, buying a ton of products and paying for a lot of services to ensure that tools such as networking systems, telecommunications, medical equipment and other devices were fully upgraded.
Thus this immensely increased demand, so the tech sector continued production while prices rose. The demand for products also resulted for a demand in related goods and services. For example, sales of computers meant sales of more modems, monitors, floppy discs and CD ROMs and applications software. The companies that made these therefore needed to expand their own factories, meaning, they had to buy additional equipment such as assembly-line robots, silicon wafers and the like. And these trickled down even to those who sold the raw materials. All of this profit resulted in a stock surge. The NASDAQ doubled. Then doubled again – fast. Eventually, investment fever started. Many start-up companies offering no real products other than “internet solutions” could make millions on an IPO, simply because investors believed that the sector was hot, so any start-up company, no matter how small or absurd their offerings were, could eventually make money. Year 2000 passed anti-climatically. Sad survivalists realized they prepared for nothing. As soon as the industry realized that no more upgrades were necessary, the orders stopped coming and the facilities that were producing those had to shut down. The consumers have already completely replaced their systems or even their PCs and thus the demand for products already on the shelves dropped too. For investors, all those recent startups that had huge IPOs with no real products went under fast. By the end of 2000, the NASDAQ had dropped by roughly three-fourths. Many techsector workers - like me - found themselves laid off. About a trillion dollars worth of virtual wealth - wealth people had measured in the trading prices of their stocks instead of in fungible, tangible wealth - disappeared. That rippled out to other sectors as many people who were spending based on their virtual wealth suddenly found themselves out of cash. As usual, a lot of people blamed the government. However, in actuality, there was nobody to blame.
What happened was bad, but it wasn’t devastating. What happened was simply a market correction. The technology sector was obviously growing, but what would have normally been 10 years or 12 years worth of growth was crammed into almost 2 and a half years, due to a short term demand spike caused by the need to resolve the Y2K problem. This produced a shortterm unnatural high, an “irrational exuberance” as Alan Greenspan would call it. Afterwards, as demand deflated, the industry dropped down, lower than what they would have liked, but not lower than where they were before the peak.
.COM
BUBBLE
CRISIS
IN A NUTSHELL
1994
Amazon.com, Inc. (NASDAQ: AMZN) is an American-based multinational electronic commerce company. Headquartered in Seattle, Washington, it is America's largest online retailer. It started as an on-line bookstore but soon diversified to product lines of VHS, DVD, music CDs and MP3s, computer software, video games, electronics, apparel, furniture, food, toys, etc
1995
HISTOR of the DOT C Y M
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CRAIGLIST IS FOUNDED Craigslist is a centralized network of online communities, featuring free online classified advertisements – with sections devoted to jobs, housing, personals, for sale, services, community, gigs, résumés, and discussion forums. GeoCities is Founded as Beverly Hills Internet (BHI) Beverly Hills Internet opened today four additional virtual communities based on real-world locations, raising to 10 the number of interactive "GeoCities"(R) BHI has established in the past five weeks. YAHOO! IS FOUNDED Yahoo! Inc. (NASDAQ: YHOO) is an American public corporation headquartered in Sunnyvale, California, (in Silicon Valley), that provides Internet services worldwide. The company is perhaps best known for its web portal, search engine (Yahoo! Search), Yahoo! Directory, Yahoo! Mail, Yahoo! News, advertising, online mapping (Yahoo! Maps), video sharing (Yahoo! Video), and social media websites and services.
MSN IS FOUNDED MSN, formerly The Microsoft Network, is a collection of Internet sites and services provided by Microsoft. The Microsoft Network debuted as an online service and Internet service provider on August 24, 1995, to coincide with the release of the Windows 95 operating system.
1995
EBAY IS FOUNDED eBay Inc. is an American Internet company that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide.
1996
ETOYS IS FOUNDED It is the leading Web-based retailer focused exclusively on children's products, including toys, video games, software, videos and music. And currently offers an extensive selection of competitively priced children's products consisting of over 8,500 stock keeping units ("SKUs") representing more than 700 brands. Since launching their Web site in October 1997, they have sold children's products to over 320,000 customers.
BOO.COM IS FOUNDED Boo.com was a British Internet company founded by Swedes Ernst Malmsten, Kajsa Leander and Patrik Hedelin that famously went bust following the dot-com boom of the late 1990s.
1998
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HISTOR of the DOT CO Y M
FLOOZ.COM IS FOUNDED Flooz.com was a dot-com venture, now defunct, based in New York City that went online in February 1999, promoted by comic actress Whoopi Goldberg in a series of television advertisements. Started by iVillage co-founder Robert Levitan, the company attempted to establish a currency unique to Internet merchants, somewhat similar in concept to airline frequent flier programs or grocery store stamp books. The company announced its closure on August 26, 2001, perceived as an early indicator of the growing dot-com bust. GO.COM IS FOUNDED Go.com (also known as The Go Network) is a web portal first launched by Jeff Gold, and now operated by the Walt Disney Internet Group, which is a part of The Walt Disney Company. The portal includes content from ABC News, ESPN, and FamilyFun.com, all of which are associated with Disney and are hosted under a .go.com name. Along with TimeWarner's Pathfinder.com, Go.com proved to be an expensive failure for its parent company, as web users preferred to use search engines to access content directly, rather than start at a top-level corporate portal.
1998
INTEREST RATES BEGIN TO FALL
The venture capitalists saw record-setting rises in stock valuations of dot-com companies, and therefore moved faster and with less caution than usual, choosing to mitigate the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998–99 helped increase the start-up capital amounts. Although a number of these new entrepreneurs had realistic plans and administrative ability, many more of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot-com concept.
KOZMO.COM IS FOUNDED Kozmo.com was a venture-capital-driven online company that promised free one-hour delivery of anything from DVD rentals to Starbucks coffee in the United States. It was founded by young investment bankers Joseph Park and Yong Kang in March 1998 in New York City. The company is often referred to as an example of the dot-com excess. The documentary film eDreams (2001) portrays the fate of the company.
PETS.COM IS FOUNDED Another important dot-com lesson was that advertising, no matter how clever, cannot save you. Take online pet-supply store Pets.com. Its talking sock puppet mascot became so popular that it appeared in a multimilliondollar Super Bowl commercial and as a balloon in the Macy's Thanksgiving Day Parade.
1998
1998
KOZMO.COM IS FOUNDED
Kozmo.com was a venture-capital-driven online company that promised free one-hour delivery of anything from DVD rentals to Starbucks coffee in the United States. It was founded by young investment bankers Joseph Park and Yong Kang in March 1998 in New York City. The company is often referred to as an example of the dot-com excess. The documentary film e-Dreams (2001) portrays the fate of the company.
PETS.COM IS FOUNDED
GOV.WORKS.COM IS FOUNDED Last but certainly not least, the story of GovWorks.com was good enough to become the documentary Startup.com, which chronicles its brief life. Envisioned as a Web site for citizens to do business with municipal government, GovWorks was started by two childhood friends in 1999. One was the flashy salesman, while the other had the technical know-how.
Another important dot-com lesson was that advertising, no matter how clever, cannot save you. Take online pet-supply store Pets.com. Its talking sock puppet mascot became so popular that it appeared in a multimillion-dollar Super Bowl commercial and as a balloon in the Macy's Thanksgiving Day Parade.
HISTOo R f the Y DOT . C
OM
GOOGLE IS FOUNDED Google Inc. is an American public corporation, earning revenue from advertising related to its Internet search, e-mail, online mapping, office productivity, social networking, and video sharing services as well as selling advertising-free versions of the same technologies. Google has also developed an open source web browser and a mobile operating system.
KIBU.COM IS FOUNDED Unlike the other flops listed here, Kibu.com, an online community for teenage girls, didn't wait till the very end to wave the white flag. In fact, at the time of its October 2000 closing, the company had not run out of the $22 million it raised. And on a more bizarre note, the end came only 46 days after a flashy San Francisco launch party.
MVP.COM IS FOUNDED Like Planet Hollywood and Flooz.com, MVP.com proved that celebrity endorsements are worth nothing in the long run. Backed by sports greats John Elway, Michael Jordan, and Wayne Gretzky and $65 million, MVP sold sporting goods online. Founded in 1999, the company grew to more than 150 employees, but a high-profile partnership came to be a liability. A few months after its launch, MVP.com entered into an $85 million, four-year agreement with CBS in which the network would provide advertising in exchange for an equity stake in the e-tailer.
1998 WEBVAN IS FOUNDED
A core lesson from the dot-com boom is that even if you have a good idea, it's best not to grow too fast too soon. But online grocer Webvan was the poster child for doing just that, making the celebrated company our number one dot-com flop. In a mere 18 months, it raised $375 million in an IPO, expanded from the San Francisco Bay Area to eight U.S. cities, and built a gigantic infrastructure from the ground up (including a $1 billion order for a group of high-tech warehouses). Webvan came to be worth $1.2 billion (or $30 per share at its peak), and it touted a 26-city expansion plan.
1998
FTSE 100 INDEX PEAKS Another reason may have been accelerated business spending in preparation for the Y2K switchover. Once New Year had passed without incident, businesses found themselves with all the equipment they needed for some time, and business spending quickly declined. GOV.WORKS.COM IS FOUNDED Last but certainly not least, the story of GovWorks.com was good enough to become the documentary Startup.com, which chronicles its brief life. Envisioned as a Web site for citizens to do business with municipal government, GovWorks was started by two childhood friends in 1999. One was the flashy salesman, while the other had the technical know-how.
Y2K
HISTOo R f the Y DOT . C
OM
GOV.WORKS.COM IS FOUNDED Last but certainly not least, the story of GovWorks.com was good enough to become the documentary Startup.com, which chronicles its brief life. Envisioned as a Web site for citizens to do business with municipal government, GovWorks was started by two childhood friends in 1999. One was the flashy salesman, while the other had the technical know-how.
H IS T O R Y
GOV.WORKS.COM IS FOUNDED Last but certainly not least, the story of GovWorks.com was good enough to become the documentary Startup.com, which chronicles its brief life. Envisioned as a Web site for citizens to do business with municipal government, GovWorks was started by two childhood friends in 1999. One was the flashy salesman, while the other had the technical know-how.
H IS T O R Y
I was a dotcom about £6m GOV.WORKS.COM IS millionaire, FOUNDED actually. That was the paper value of my Last but certainly not least, the story of GovWorks.com was good enough to shares in an internet printing business that become the documentary Startup.com, floated on AIM in 2000. The shares were which chronicles its brief life. Envisioned almost worthless within a year, but we did as a Web site for citizens to do business manage to acquire and build a good telecoms with municipal government, GovWorks business in the end. We even made some was started by two childhood friends in real, actual money - eventually. 1999. One was the flashy salesman, while the other had the technical know-how. PETER HENRY, BANBURY UK
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PHIL, MELBOURN AUSTRALIA
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H IS T O R Y The last comment in the article is totally correct. "If broadband were around it would have worked". Simple fact is they invented the car before they invented the road!
I lost 90% of my money and still have a lump in my throat when I think about it. ADAM, KILMARNOCK, UK
Those were the days, and I remember them well. At that time I was working in California responsible for a "start up" company in the marine and coastal construction industry. Not much to do during the weekends other than to search around for other business opportunities. Then I stumbled into the mayhem of the dotcom boom... what a mess. Everyone running around like headless chickens and talking up a storm. This period in time helped me start something that still works for me today... that is, forget the talk, forget the fancy suits and concentrate on the people who do the actual work.
NIGEL GRIFFITHS, BIARNUM, SWEDEN
{ EDITORIAL STAFF } DANE MARC VILLANUEVA BS LEGAL MANAGEMENT
AL LIM AB MANAGEMENT ECONOMICS
MA. NINA KHO AB MANAGEMENT ECONOMICS
KIM SANTOS AB MANAGEMENT ECONOMICS
JAIME GATPANDAN AB MANAGEMENT ECONOMICS
