25 years ago, on March 10, 2000, the dotcom bubble reached its peak. The tech-heavy NASDAQ reached its peak that day at 5,048.62, before the bubble burst and stocks went tumbling. Pinpointing when the dotcom bubble burst is harder. But pinpointing when it reached its biggest point is easy.
And while we sometimes call it the dotcom boom and the dotcom bust, it really was more of a bubble. Investors were terrified at missing out on the next Microsoft. And they were convinced the next Microsoft would come out of the dotcom era. One could say they were right. Amazon and Google did emerge from the dotcom era and both outrank Microsoft on the Fortune 500 today. But that took time. It wasn’t clear in 2000 how an online bookseller and a search engine were going to eclipse Microsoft in revenue someday. Nor was it clear they were going to be the ones to do it.
A wild time
The dotcom era was a wild ride. When the NASDAQ peaked on March 10, 2000, it was double its value of a year before. Historically, it takes seven years for a market to double in value on average. So to say the dotcom era was overheated is an understatement.
And it’s a misnomer to call it a boom. In a boom, someone’s actually making money. Amazon didn’t have a profitable quarter until Q4 of 2001, and it was a modest profit of $5 million. It didn’t have a profitable year until 2003. Google was more promising, as it was turning profits before its IPO.
But Google was the exception. A company didn’t have to be profitable for its stock to boom. Netscape was the poster child for this. It created a necessary product, but Marc Andreessen and Jim Clark couldn’t figure out how to make it profitable. Andreessen is only rich today because he and Clark managed to convince AOL to pay $10 billion for the company before they could finish running it into the ground. Transmeta was another example of a company with interesting technology but no profits. Competing with Intel wasn’t any easier during the dotcom bubble than it was in the years right before it.
The stereotypical dotcom business model went something like this: Find something nobody’s selling on the Internet. Register a domain name. Start selling that product on the Internet. Then wait for profits to happen like magic. And without a solid business plan that included things like logistics, those profits rarely happened and typically weren’t sustainable when they did. Just like in any other business. But since this was the Internet, it was going to be different this time, somehow.
A generation of billionaires made their fortunes in this era, including Peter Thiel and Mark Cuban. And it seemed like everyone was trying it. Even Ghislaine Maxwell’s family. Really.
The dotcom Super Bowl
Super Bowl XXXIV also reflected this excess. A total of 14 dotcom companies paid an average of $2.2 million each for a Super Bowl commercial spot. E*Trade’s Super Bowl XXXIV ad exemplified the excess better than any of the others. It showed a chimpanzee lip-synching to La Cucaracha and bragged about having just wasted $2 million.
The company that doubled in price for no reason
But my favorite dotcom story is Internet America. It was just a random regional provider of dialup service. Its name happened to be two magic words. On December 21, 1999, its share price doubled in spite of there being no news whatsoever about the company on that day. Smart investors cashed out immediately, and many did. In after hours trading it lost 25 percent of its value.
The house of cards
It turned out that business on the Internet was like business anywhere else in one regard. Companies without a business plan don’t make it very long. But since investors didn’t mind if a company didn’t have a plan or a path to profitability, it was a house of cards. Just three days after NASDAQ peaked, news of a recession in Japan was enough to tip the balance.
And Y2K was over along with its spending boom, so while Y2K money helped send the NASDAQ skyward, it wasn’t there to cushion the fall. Tech stocks started tumbling, and they didn’t pop back up again for years.
Some of the companies started failing too. Three of the companies who bought expensive Super Bowl ads, Pets.com, Epidemic.com, and Computer.com, were out of business before the year ended. E*Trade’s Super Bowl XXXV ad made fun of the previous year’s dotcom ads, including directly making fun of Pets.com. It was set in a ghost town, reflecting how many dotcom companies had already failed. E*Trade’s message was clear: The dotcom bubble had burst.
The dotcom bubble hurt the tech industry as a whole too. Companies like Sun Microsystems, Compaq, and 3Com all profited selling equipment to these well-funded startups, but as the startups started struggling and going out of business, sales dried up. The wide availability of surplus lightly used equipment drove down demand for their products even further. The aftermath of the dotcom bubble didn’t just turn dotcoms into acquisition targets. Established tech companies became acquisition targets themselves. In some cases, they even sought out acquisition as a matter of survival.
It was a long ride down too. The market didn’t bottom out until 2002, and when it did, it fell back to 1997-like levels. It rallied in 2003, only to plateau in 2004.
A full recovery took a long time. The NASDAQ didn’t reach a level above 5,000 again until 2015. Google‘s 2004 IPO is generally seen as the point when the recovery started. Google intentionally postponed its IPO as a result of the dotcom bust.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.