The internet was created by the United States military for their own purposes, greatly underestimating the number of people that want to be online. Being just one of those silly inventions, no one could actually predict how far it will develop or in what direction. No one still can. Commercial usage of the internet started around 1995 with an estimated 18 million users.
Just to compare, that was not even twenty years ago. The statistics today show over 2 billion internet users, approximately one third of the entire human population. But before the year 2000, it all seemed like a distant and very profitable future.
The strong rise in usage meant a new untapped market, new international market restricted with only few borders, a place of great profit opportunities for those with guts. It didn't take long for speculators to excite over the new world they found online. There were many factors that led to the dot-com bust.
Dot-com speculation bubble
First of all, the longtime soaring stock prices were hard to ignore. As internet stocks continued to shine, making speculators and entrepreneurs rich in the process, investors felt they should get into it as well, and in the end the ordinary people joined the party with their lifesavings. Western economies were sound at the time and the crisis wasn't anywhere near the sight. Unemployment and inflation were under control. A dramatic increase in venture funds assets occurred, banks were happy to provide loans, while speculation and greed slowly lay foundations for the future dot-com bubble bust.
All the people that entered dot-com industry had basically the same plan. They possessed a big idea, which sounded profitable and modern. Considering the fact that the internet could be divided into many segments due to the nature of the websites and their niches, each of the businesses wanted to monopolize their respective segment. In fact, being first meant being the only business to enjoy the benefits of the soaring stocks which you could sell later.
This led to cut-throat competition, and there was no room for anyone but the winners. However, lack of the real long term business plans was evident. Buzzwords like new paradigm, networking, information technologies, internet, consumer-driven navigation, and other empty double-talk filled the media. Internet companies emerged frequently on numerous initial public offerings, sweeping the nation up in euphoria. Regardless to the prospect of actual profitability of the company, investors were blindly grabbing every new issue without even looking at a business plan.