The Dot Com Bubble

Topics: Dot-com bubble, Stock market bubble, Stock market Pages: 12 (4321 words) Published: January 21, 2013
By Jesse Colombo
The Dot-com Bubble or the Tech Bubble was a speculative bubble in the shares of early internet companies called “Dot-coms.” Soon after the 1987 stock market crash, global stock markets resumed their previous bull market trend, led by computer and other technology-related stocks that were traded on the new electronic NASDAQ stock exchange. By the early 1990s, personal computers were becoming increasingly common for both business and personal use. Now that computers were finally becoming reasonably priced and relatively user-friendly, they were no longer relegated to being the domain of geeky hobbyists. Personal computers had become genuinely useful business tools that granted their users a significant boost in productivity. Business applications were invented to help users with a variety of tasks from accounting to tax preparation to word processing. Computers also began to compete with television as a form of entertainment as PC video games entered the marketplace. The operating system company Microsoft prospered enormously as almost every computer system sold had their software installed on it. During the 1990s, the U.S. computer industry decided to focus primarily upon computer software development instead of designing and manufacturing computer hardware. The reason for this focus was because computer software was a product with very high profit margins, unlike computer hardware. Software companies generated profits by selling licensed software, which costs very little to reproduce. Computer hardware, however, was rapidly becoming a commodity product or a product that is virtually indistinguishable from the product of any other competitor, which forces companies that are manufacturing such products to strongly compete on price. Asian companies, with their low manufacturing costs, produced virtually all computer hardware components by the 1990s. Software, however, was protected as intellectual property with patents, which created a strong barrier to entry – a benefit that is highly sought after in business. Software companies’ stocks were very strong performers throughout the 1990s. Enthusiasm over the software business led to the creation of many small software startups, with a good portion of these fledgling companies being launched by college students in garages, paying their employees in as much pizza and soda as they desired. Practically every software startup hoped to become “the Next Microsoft”. Eventually, many of these startup companies attracted the attention of venture capitalists who were interested in financing the startups, taking them public and, hopefully, reaping massive profits. By this point, startups began to pay their employees with company shares with the intention that the shares would become very valuable when company eventually went public. The majority of the software companies that were started during this era were located in Silicon Valley, near San Francisco, which became a technology Mecca. PCs became even more popular in the mid-1990s, when blockbuster PC games such as Sim City and Duke Nukem were launched and inspired many young people to become tech savvy. By the mid-1990s, the NASDAQ index of technology stocks was rising at an extremely fast pace, causing many tech-focused investors to become wealthy. How the Internet Age Started

By 1994, the internet first became available to the general public. A primitive form of the internet called DARPANet had been around since 1969 and was created by government agencies as an efficient way to exchange scientific and military information to computers in different locations. During the mid-1990s, the internet had evolved as a way for people to communicate via email, use chat rooms and browse websites. Almost immediately, businesses saw the internet as a significant profit opportunity. America Online (AOL) made the internet available to the general public on a large scale. The Yahoo! search engine and internet portal was started in...
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