The Dot-com Bubble refers to the speculative bubble of securities belonging to early internet companies of the late 19th century called “Dot-Coms”. During the early years of the 1990s, personal computers were becoming increasingly common for both personal and business use. At that particular point in time, computers were a lot more affordable, and much easier to use relative to the previous decade.
One of the factors that contributed to the increased interest in computers was the fact that they increased productivity. Another reason would be that, in the 1990s, computers began competing with televisions in the field of entertainment. A final point to mention would be that Microsoft made substantial profits during this time because its operating system was installed on almost all computers sold! Software development(instead of hardware development) grew in prominence during this time because of the increased profit potential in this area.
Because of the increased profit potential coming from software development, many investors invested significant amounts of equity in Internet based startups, under the impression that these companies would be profitable in a short period of time.
Focusing on the goal, and ignoring the potholes on the journey to success in this industry, most “investors” ignored traditional financial metrics such as the Price-to-Earnings ratio, and instead focused on building market share and brand awareness over a short period of time, even if that entailed the provision of services at a discount or for free.
Another significant contributor to this particular recession would be that the interest rate environment in first world countries was low in 1998 following several recessions in Asia, and Latin America amongst others and this led to a savings glut. Some of the funds resulting from this low interest rate environment were invested in Dot-com stocks, and this helped fuel their overvaluation.
In the early 2000s reality began to sink in and the investors realized that the frenzy over dot-com stocks was nothing but a speculative bubble. Companies like Pets.com, which a multibillion-dollar valuation before the collapse of the bubble, began filing for bankruptcy. By far on of the most interesting economic phenomena in recent history, it is a lesson to learn a significant amount from, considering the continued interest in technological firms. Watch the video below for more information.
References
15 '90s Computer Games That Made Learning Unbelievably Fun, bustle.com
Microsoft Revenue by Year: Fiscal 1990-2019, dazeinfo.com
The Roaring Nineties, Atlantic.com
Where Are They Now: 17 Dot-Com Bubble Companies and Their Founders, cbinsights.com
Global Savings Glut, Wikipedia.com
Why Did Pets.com Crash so Drastically, Investopedia.com
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