Historically, dot-com bubble bears a lot of resemblance to the other technological fueled economy growth. The railroad boom in the 1840s, automobile and radio boom in the 1920s, transistor electronics boom in the 1950s, computer time-sharing boom in the 1960s, and home computers and biotechnology boom in the 1980s had all been the driving force in their own respective periods.
The difference between them and the dot-com bubble lies primarily in the number of people they affected; the main ingredients were in every case simple human greed and speculation. Getting to market first and speed as a competitive advantage were common business mantras of the dotcom and high-tech world.
Yet the faster these organizations moved, the more they ignored signs of severe employee burnout, pending droughts of funding, poor customer service, unfocused leadership, and diversions from the original vision and mission.
In the year 1999, there were 457 initial public offerings, most of which were internet and technology related. Of those 457, 117 doubled in price on the first day of trading. In 2001 the number of initial public offerings dwindled to 76.
Several communication companies could not weather the financial adversity and were forced to file for bankruptcy. One of the more significant dotcoms called WorldCom, was found practicing illegal accounting practices to exaggerate its profits on a yearly basis. WorldCom's stock price fell drastically when this information went public, and it eventually filed the third-largest corporate bankruptcy in United States history.
Other examples of failures include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications, and Covad Communications. Companies that produced network equipment such as Nortel, Cisco and Corning were at a disadvantage because they relied on infrastructure that was never developed which caused their stocks to drop significantly. Many dot-com companies ran out of capital and were acquired or liquidated. The domain names were picked up by old-economy competitors or domain name investors. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors.
The stock market crash of 2000-2002 caused the loss of $5 trillion in the market value of companies. A few large dot-com companies, such as Amazon.com and eBay, survived the turmoil and now appear assured of long-term survival, while others such as Google have become industry-dominating giants.
Another Internet bubble?
There is a question whether or not we have entered yet another dot-com bubble. The mounting facts in support of another Internet financial bubble are hard to deny, primarily because of what seems to be growing enthusiasm for Internet company stock on Wall Street. There was an initial public offering earlier this year of LinkedIn, a website for professional networking. With so much investor appetite the public offering doubled the price target at launch.
An Internet radio station Pandora stocks doubled at initial public offering launch before quickly settling back. Zillow, a website that provides information about homes, real estate listings and mortgages could be the latest clue. The company's stock went public at $20 a share, and since then the price doubled to $44 a share on the next day. Among almost 80 initial public offerings in 2011, more than one-third had been from Internet or technology companies. So, are we going to be remembered as the social-network bubble of 2011? Only time will tell.