History of Economic Recessions – Dot-Com Bubble Burst 6/7

Dot-Com Bubble Burst

The dot-com bubble refers to the speculative bubble that took place in Information Technology and communication type industries during the late 1990s, until it’s collapse in 2000/2001. Western nations saw an increase in their total value, and a very rapid growth of GDP resulting from technology companies growing at speculative rates.

“A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line.” says Wikipedia, rather elegantly on the subject.

Many companies during this period were rated based on their churn rate; that is, how fast they were spending through their venture capital. Since few companies had reached profitability, or ever would reach profitability, they were dependent on the results of their IPOs and venture availability to keep afloat, and the rate at which they spent that money would determine how long they’d survive.

The NASDAQ, a technology stock index, reached a peak of over 5,000 points on March 10th of 2000, nearly 200% of what the same index sits at now, 9 years later, and over 500% of what it remained at after the bubble collapsed.

Much of the economy was restructured as a result of this bubble, the then new-age Internet company AOL, acquired old-world media conglomerate Time Warner, to form AOL Time Warner, before removing the “AOL” from their name after the collapse. Dozens of companies filed for bankruptcy, hundreds of dot-com companies simply disappeared, and widespread collapse in the communication industry, where funds were promised for massive growth projects, resulted in the collapse of Nortel, Worldcom, and a number of other major companies.

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