Dot-com bubble: explained

Image by: The Big Quack

It is a moment of collective revelation at every work function or pizza party, one of the key topics to cover in the lobby before an info graphic stuffed, web based TED talk and possibly the most ‘geeky’ subject that nearly everyone can understand and find remarkably interesting at some point.

It’s the ‘dot-com bubble’ conversation. If you need to brush up on what the ‘bubble’ was then here is everything you need to know told in the best way I know how… simply.

What does it mean?
Here is a good explanation of the Dot-com bubble in short, courtesy of Investopedia, it was:

“A rapid rise in equity markets fueled by investments in Internet-based companies. During the dot com bubble of the late 1990s, the value of equity markets grew exponentially, with the technology-dominated Nasdaq index rising from under 1,000 to 5,000 between 1995 and 2000”.

Now that you know what it is, lets understand the ‘bubble’s’ three stages of ‘being’.

1. Beginning of the bubble
When the internet went from being used by really important, privileged or technologically minded web users to the general public, the growth in web user numbers soared.

When the huge growth was seen in 1995, companies saw this as a great opportunity to market products through a barely used channel, the internet. For 5 years internet start- ups and dot-com companies sprouted like weeds; known as dot-com’s because of the ‘.com’ at the end of their URL address.

These were companies that mainly consisted of an online business with only a URL for identity and all the promise in the world for providing a unique service and the promise of all the success in the future.

Their small team of creators became ‘dot-com’ millionaires and some of them are better known today than others, such as (and listed by Wikipedia):
• Hotmail – founder Sabeer Bhatia sold the company to Microsoft for $400 million; at that time Hotmail had 9 million members all of which were seen as a valuable target market for Microsoft when they bought it out.
• The Learning Company, bought by Mattel in 1999 for $3.5 billion and sold for an incredible $27.3 million in 2000
• GeoCities purchased by Yahoo! for $3.57 billion in January 1999. Yahoo! closed GeoCities on October 26, 2009 to encourage its dependent customer base to use Yahoo’s paid counterpart.

2. Expansion of the bubble
These companies competed by targeting various demographical markets, and attempted to use rather risky techniques to dominate their market; this combined with the approach of rapidly growing customer bases before making any real profit was the first mistake: assumption that products would sell if there were people to sell the product to.

Seeing these on line companies rapidly expanding and gaining big numbers in customer bases, the American stock market became a prime trading point for creating an endless supply of companies with cheap stock. Investors pumped millions into the internet business sector by sponsoring little guys with big ideas.

Some of these companies started with nothing and became hugely popular within a few years but for the majority, the rapid growth in the dot com bubble led to an inevitable burst in 2011 and in consequence, a mild recession on the stock market.

3. ‘Pop’ goes the bubble
Companies that were worth nothing in profits were now folding before they could return their investments thanks to a number of factors:
• Stock market regulation
• Eradication and policing of ‘bad conduct’ and illicit business techniques. A good example of being bad would be the notorious WorldCom, a global telephone and internet provider that used “fraudulent accounting practices to increase their stock price” and whose CEO not only was caught out and convicted of fraud but which also went bankrupt a year after the bubble burst in 2002 –Wikipedia 2011
• Quick financial withdrawal of ‘once burnt’ investors
• Impact on the stock market after the US started being attacked by middle East terrorists shaking an already fragile trust in their economy
• An instant cease in new dot-com investors who were wary of all the above factors

Bubble 2.0?
Will there be a second bubble? It is predicted that there will be. All because of our demands for fast, reliable internet.

What do you want? High speed, affordable broadband. What will you get? A second bubble. It’s all because of the general web public really, you are an unsuspecting group of demanding web users who are unsuspecting that you are perfect for strategic target marketing. This is at least the view of market analysts. They think that with:
• The very evident rise in social networks like Facebook
• The increase in mashable ideas brought together to form unique, web based services providers
• Specifically targeted adverts through social networking sites and google search
• Free advertising through much hyped about theories on growth and web use by bloggers and news websites.

… that the overwhelming success of modern day web companies is seen to be the beginning of the growth of a second bubble thanks to the ever growing ‘broadband generation’ cutomer base.

Now for those who have forgotten about the third part of the bubble (who needs all that doom and gloom anyway?) you may think its too late.

Everyone wishes they had bought shares to Facebook instead of laughing at such a ridiculous concept a few years ago –OK Mark, you can get that grin off your face now- and perhaps paid more attention to the rise in web users with broadband… enough anyway to make a connection between an ever growing customer base and something cool that could be sold to them… but you know, it’s never too late to get in on it if another bubble is predicted. If you’re not scared of the consequences then why not get a piece of the ‘bubble’ pie?

If you are a brazen geek with a great idea or even an ordinary web user with a friend with a great idea that you’re happy to end yup in court with then go ahead. Spit in the face of despairing analysts and get in on one of those ‘overnight’ online success stories and be part of the next bubble.

Watch this video on how to go about it. This video is nicely presented in a neat little song by the Richter Scales and is surprisingly easy to understand yet mildy ironic considering its host platform making it even funnier. The best use of bandwidth of the day.

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