Dot-com (also dotcom or redundantly dot.com) companies were the collection of start-up companies selling products or services using or somehow related to the Internet. They proliferated in the late 1990s dot-com boom, a speculative frenzy of investment in Internet and Internet-related technical stocks and enterprises. The name derives from the fact that many of them have the ".com" DNS suffix built into their company name.
A canonical "dot-com" company's business model relied on network effects to justify losing money to build market share, or even mind share, through giving their product away in the hope that they could eventually charge for it. Many raised cash through public offerings on the stock exchanges, with stock often soaring to dizzying heights and making the initial controllers of the company wildly rich on paper. Dot-com companies were stereotyped as having extremely young and inexperienced managers wearing polo shirts with lavish offices including foosball, free food and soft drinks as well as Aeron chairs. Companies frequently held parties or expositions where free pens, t-shirts, stress balls, and other trinkets were given away emblazoned with the company's logo. The companies were also stereotyped as requiring extremely long work hours and high pressure.
An annual event started in 1996, the Webby Awards works to recognize the best websites on the Internet. The event was typically an extravaganza held annually in San Francisco, California, near the heart of Silicon Valley. The ceremonies mirrored the flashy dot-com lifestyle with costumed guests, modern dancers, and faux-paparazzi to make guests feel important. The event peaked in 2001 with thousands in attendance. In 2002, it was a more somber event with only several hundred guests and little of the excess of the late 1990s. In 2003, the awards were reduced to a virtual event because many of the nominees couldn't fly to San Francisco due primarily to corporate belt-tightening. During the boom, attendees could slip away from their work for a short time without fear of losing their jobs.
A stock market bubble in financial markets is a term applied to a rise or boom in the share prices of stocks of a particular industry, and applied only in retrospect when share prices have since crashed. Typically many companies thus become grossly overvalued. When the bubble "bursts", the shares become worth a small fraction of their value at the height of the boom, and many companies went out of business.
The dot-com model was inherently flawed: a vast number of companies all had the same business plan of monopolising their respective sectors through network effects, and it was clear that even if the plan was sound, there could only be at most one network-effects winner in each sector, and therefore that most companies with this business plan would fail. In fact, many sectors could not support even one company powered entirely by network effects.
In spite of this, vast fortunes were made by a few company founders whose companies were bought out at an early stage in the dot-com stock market bubble. These early successes made the bubble even more buoyant.
The dot-com boom had a jargon of its own including "dot-com millionaire", "burn rate", and IPO (initial public offering). The phrase "Get large or get lost" was received wisdom as a window of opportunity beckoned to hopeful entrepreneurs and investors.
At the height of the boom it was possible for a promising dot-com to make an initial public offering of its stock and raise a substantial amount of money even though it had never made a profit, making its principals and employees, who may have been partially paid with stock options instant dot-com millionaires. But then the matter of burnrate came into play as capital was expended in the operation of a company which was not making a profit and had no viable business model.
In February 2000, stock prices for e-business and "Dot-com" companies started to fall. Many companies had very weak and optimistic business plans, failed to raise renewed funding, and had to lay off workers and close down operations.
In Europe the vast amounts of cash the mobile operators spent on 3G-licences in Germany, Italy and the United Kingdom for example led them into deep debt. The investments were blown out of proportion regardless of whether seen in the context of their current or projected future cash flow, but this fact was not publicly acknowledged until as late as 2001 and 2002. Due to the highly networked nature of the IT industry this quickly led into problems for small companies that were dependent on contracts from operators.
The downtrend first reached the highly specialized "dotcom" companies, but soon spread to computer manufacturers, telecom, and industry in general.
An example of the free spending by dot-coms is visible in comparing advertisers for the 2000 and 2001 Super Bowls. Seventeen dot-com companies each paid over $2 million for a 30-second spot during the January 2000 Super Bowl. In January 2001, just three dot-coms bought advertising spots.
Historically the dot-com boom can be seen as similar to a number of other technology inspired booms of the past including railroads in the 1840s, radio in the 1920s, transistor electronics in the 1950s, computer time-sharing in the 1960s, and home computers and biotechnology in the early 1980s.
Thinning the herd
The dot-com bubble burst, numerically, on March 10, 2000, when the technology heavy Nasdaq stock market index peaked at 5048.62, more than double its value just a year before. By 2001, the bubble's deflation was running full speed. A majority of the dot-coms have now ceased trading, after having burnt through their venture capital, often without ever making a gross profit, thereby becoming dot-compost. A number of companies associated with the dot-com boom have been accused of or convicted of fraud. The dot-com phenomenon has been described with a number of unflattering nicknames, including dot-con and dot-bomb.
Some reasons given as to why the bubble burst when it did are the six interest-rate increases made by the Federal Reserve in 1999 and early 2000 finally catching up with the economy.
Another reason given was rapidly accelerated business spending in preparation for the Y2K switchover. Once New Year had passed without incident, businesses found themselves with all the equipment they needed for some time and business spending dried up. This correlates quite closely to the peak of U.S. stock markets. The Dow Jones peaked in January 2000 and the Nasdaq in March 2000. Immediately, hiring freezes, layoffs, and consolidations followed in several industries, especially in the dot-com.
A few established dot-com companies including Amazon.com and eBay have survived this turmoil in good shape, and appear to have a good chance of long-term survival. Google Corporation, which produces the Google search engine, is not typically considered a "dot-com" company.
The online magazine SatireWire  (http://www.satirewire.com/) makes fun of the dot-com bubble. A particularly famous website, Fucked Company, became a focus of bad news about companies laying off large numbers of staff or closing their doors altogether.
The dot-com boom produced other economic problems, based on the theory of growth of dot-coms and the need for broadband access that was assumed to follow in its wake. Many people believed that the amount of fiber optic and copper cable needed to service network traffic would increase exponentially because of the continuing explosive growth of the dot-coms. This appears to have been inspired by a famous quote made by a WorldCom executive, who claimed that network traffic would double every hundred days for the foreseeable future. Based on this continuing assumption, many of these networking companies (like the dot-coms) took on huge debts to finance massive network expansions. Their IPOs were incredibly successful, since many investors also believed that they would also soon be party to an explosion in network traffic.
Many networking companies found themselves in trouble slightly before and certainly after the bubble burst because of their debt loads and the collapse of network subscriber growth; a few were even accused of accounting scandals used to make them appear profitable when they were not. Several were also forced to declare Chapter 11 or Chapter 7 bankruptcy. When these companies went bust, a significant portion of the fiber optic infrastructure went unused and became so-called "dark fiber". Some analysts believe that there is so much "dark fiber" worldwide that only a small percentage of it will be "lit" in the decades to come. See NorthPoint Communications, WorldCom, Global Crossing, JDS Uniphase, XO Communications, Covad Communications.
List of famous dot-coms
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