Dot-coms
Definition Companies that conduct business and
deliver products or services primarily via the
Internet and are designated by the domain
address .com
Many e-commerce start-up companies took shape during the
mid-1990’s. When the dot-com bubble burst at the begin-
ning of the twenty-first centur y, investors lost confidence as
these businesses did not return anticipated profits. When
dot-com stocks began to plummet, the businesses began to
fail in record numbers.
The communications network known as the Inter-
net was originally created for use by scientists and
the military. That limited usage changed, however,
with the launch of the Netscape Navigator browser
in 1994 by Netscape Communications founder Marc
Andreessen. The browser allowed consumers un-
precedented access to information online via the
World Wide Web. Exuberance abounded for busi-
ness start-ups in the electronic commerce (e-com-
merce) revolution, much as great enthusiasm had
accompanied the development of telegraphy, tele-
phony, and transistors earlier in the twentieth cen-
tury. The business world soon took notice of the
commercial potential in this technological revolu-
tion, and by the mid-1990’s, the U.S. economy expe-
rienced significant productivity growth with the In-
ternet. Young entrepreneurs who had graduated
from some of the top business schools in the United
States saw an advantage to e-commerce and rushed
into the marketplace to make their fortunes. For ex-
ample, Jeff Bezos quit his job on Wall Street, moved
to Seattle, and founded Amazon.com (1994).
By the fall of 1998, the National Association of
Securities Dealers Automated Quotation System
(NASDAQ) index and the Dow Jones Industrial Av-
erage had tripled. Investors were eager to jump at
the chance to enter the dot-com boom in anticipa-
tion of a global economy and the increased techni-
cal mobility made possible by the Internet, resulting
in a wave of enthusiasm among shareholders who
wanted to enter the cybermarketplace. This new
economy experienced an infusion of venture capi-
tal; incomes soared, and stock values increased.
High confidence caused an explosion of dot-com
companies that attracted even more entrepreneurs
to unprecedented investment and dividend oppor-
tunities. Investment totals went from $3 billion in
1990 to $60 billion in 1999. Media and business
tycoons soon hailed the new economy as eco-
nomic productivity growth occurred and many
Americans attained a higher standard of living.
The e-commerce explosion would not last, however.The Dot-Com Bubble Bursts The problems of in-
ept strategies and slow reactions to their customer
bases plagued the dot-coms throughout the late
1990’s. The NASDAQ peaked on March 10, 2000,
leading to a five-week collapse when the NASDAQ
dropped 34 percent from March 10 to April 14. The
immediate explanation for the decline was that the
dot-coms had launched a U.S. media blitz for the
1999 Christmas season that had ended up backfiring
on them. The companies conducted their sales cam-
paigns all at the same time, and all of the advertising
hype confused consumers. Another factor in the
crash was the accelerated spending on computer
hardware and software that companies had done in
preparation for the transition to the year 2000 (the
so-called Y2K crisis). The bubble burst, recession hit,
and the dot-coms went out of business.
The problem of the dot-com bubble was exacer-
bated by rhetoric in the mass media that promised
unlimited prosperity and an end to the traditional
business cycle. Indeed, the chief executive officers
(CEOs) of many companies became rich on paper,
but a number of companies did not develop good
business plans or models. Often, the survival of these
companies depended on their expanding their cus-
tomer bases too rapidly. These dot-coms were
launched in the hope that they would generate large
sales and profitability, but public stocks were offered
before the companies had produced solid business
plans, and initial public offerings (IPOs) were made
before the companies’ prospects for success were
fully evaluated.
The major reason for the downfall of the dot-
coms was the companies’ failure to exercise caution.
Business journalists, Wall Street analysts, and policy
makers such as Federal Reserve Board chairman
Alan Greenspan lauded the new economy in the dot-
com era. When the IPOs began to double and tri-
ple, investment banks followed with allocations of
shares to their best customers, who sold these
stocks in an increasingly speculative market. In the
end, the Internet fostered overly optimistic expecta-
tions among business founders who diversified too
quickly. Dot-com managers lacked the skills to pro-The Nineties in America Dot-coms 267