2001 dot-com Bubble: its causes, effect, and lessons learnt
This cardboard looks at the causes, effects, and acquaint learnt from the 2001 dot-com balloon banking crisis. To abutment my statements I investigate a array of sources, including afresh appear bookish journals, bi-weekly articles, books, and bazaar reports. I acquisition that the so alleged “Get Big Fast” business archetypal that abounding dot-com companies active was fundamentally flawed, and afterwards the balloon access abounding companies accept begin it added benign to move to a added advisable model.
The dot-com balloon was a celebrated abstract balloon in the banal bazaar which occurred in the years on 1995 to 2000. As an indicator of the bubble, the NASDAQ blended basis is generally quoted. The NASDAQ blended basis rose from 751.49 to 5,132.52, a 682% increase, from January 1995 to March 2000 (Appendix A, B).
In this work, I attending at factors that may accept acquired the 2001 dot-com balloon to abound and again afterwards burst. I attending into the role of the media, absorption rates, adventure capital, and assuredly the “Get Big Fast” business model. Next I attending at the aftereffect the 2001 dot-com balloon had on companies, because measures of survival, levels of mergers and acquisitions, and changes in angel to abolish affiliation with those times, but additionally on broker confidence. Finally, I attending at what acquaint may accept been learnt from the dot-com era.
American publications such as Forbes and the Wall Street Journal encouraged the accessible to advance in chancy companies admitting abounding of the companies’ apathy for basal banking and alike acknowledged attempt (Lowenstein, 2004). Buffett (2000) says “Equity investors currently assume berserk optimistic in their expectations about approaching returns.” However, not alone can the media be argued to accept acquired the huge advance of investment, but it can, according to Niederhoffer and Kenner (2003), additionally be attributed to its demise. They allege in accurate about Alan Green’s “irrational exuberance” accent in December 1996 ambience of a alternation of contest that leads to an closing “reaction adjoin technology, optimism, and growth”.
In reality, of course, no banking crisis can be evidently attributed to aloof one cause. It is added acceptable instead to be a aggregate of many. For example, the low absorption amount in 1998-99 has been said to accept helped access the start-up basal amounts and advance to added adventure basal actuality offered (Metrik, 2007).
The bogus of the “Get Big Fast” acceptance started during the dot-com era. The antecedent start-ups operated with a concise accident business plan, insisting that by avaricious the bazaar allotment and assertive their specific sectors they could again allegation what they capital at a afterwards date. Recent analysis (Goldfarb, Kirsch and Miller, 2006) suggests that abounding companies would accept had bigger success targeting abate alcove markets. In addition, they say that the “Get Big Fast” acceptance collection broker behaviour during the aeon arch to added stocks bought and companies became overpriced.
So, as a aggregate of a cardinal of factors, the balloon access and the furnishings were widespread.
The furnishings of the balloon alpha were that several companies went bankrupt. An archetype is WorldCom who accepted to billions of dollars of accounting errors (Tran, M., 2002), and as a aftereffect the banal amount fell so acutely they had to book for bankruptcy.
Many alternative disturbing companies became acquired or alloyed with alternative companies. Aharon et al. (2010) begin that there was an access in mergers and acquisitions during the dot-com bubble. Interestingly, they additionally begin that the appraisement of mergers and acquisitions did not change.
Mintel (2010) states: “The advance band bazaar was abominably hit by the alpha of the dot com balloon in the aboriginal noughties and has been in abiding abatement anytime back – in 2002”.
Many companies afflicted their names to abolish any affiliation as a dotcom company. Cooper et al. (2005) acknowledgment how during the buck bazaar of the aboriginal 2000s “investors acknowledge absolutely to name changes for firms that abolish dot.com from their name”.
Within the technology sector, Parsons (2012) argues that greater abstemiousness is ensuring the “sector is financially solid and is currently the alone one to accept added banknote on its antithesis area than debt”. There additionally seems to be an acquaintance of the accident to Antecedent Accessible Offerings by companies. Recent analysis (Pilbeam and Nagle, 2009) advance that “the high-tech IPO bazaar was badly afflicted by the Dot-Com Blast and that afterwards the crash, the cardinal of high-tech IPOs alone considerably”.
Many companies confused abroad from the “Get Big Fast” acceptance that epitomised the dotcom era, seeing that it was not acceptable as business model. Eventually these companies would accept to alpha to a get the fundamentals appropriate and about-face in a profit. So abounding were actuality started too quickly, all with the business plan of monopolising their accurate bazaar place, which accordingly not anybody could accomplish and abounding as a aftereffect folded. Berlin (2008) says “Many of the companies that survived the dot-com apprehension did so by blank the prevailing “Get Big Fast” business model”. He talks about analysis by David Kirsch and the Dot Com Archive that begin that they referred “micro niches” which were markets that did not action huge profits quickly, but instead presented applicable internet-based business opportunities. Companies that had learnt from the dot-com balloon were not assertive that life-altering changes would appear over-night.
Many accept that acquaint accept not been learnt from the 2001 dot-com balloon banking crisis. Abounding anticipate that we are in addition amusing media balloon currently which has actual akin characteristics to the 2001 dot-com balloon (Vass, 2012; Foley, 2012).
In this article I accept looked at the cause, effect, and acquaint learnt from the 2001 dot-com balloon banking crisis. The account unsurprisingly does not assume to appear bottomward to one distinct factor. The media acutely played a ample allotment in authoritative investors over assured during the advance and again ever bleak arch to its closing demise. However, I additionally begin that an ailing business archetypal of the time, “Get Big Fast”, played a above role too. I begin affirmation that added advisable business archetypal based on bashful profits had advance to the technology area recovering. As always, history has a addiction of repeating itself, and I additionally looked into the accept of some that acquaint accept not been learnt by Amusing Media companies and that we may be in addition Amusing Media balloon appropriate now with characteristics actual agnate to that of the dot-com crisis.
Appendix: Line blueprint illustrating the 2001 dot-com bubble
Figure 1: The abutting amount of the NASDAQ Blended (Yahoo! ticker attribute ^IXIC) from 2nd January 1990 until the alpha of 2012. The blueprint acutely illustrates the 2001 dot-com bubble, area the amount of the NASQAQ blended rises steeply up until its aiguille in February. Data is taken from Yahoo! Accounts Historical Prices accessible at http://uk.finance.yahoo.com/q/hp?s=^IXIC.
Appendix: Table assuming the acute of the NASDAQ Blended price
Table 1: Historical prices of the NASDAQ Blended (Yahoo! ticker attribute ^IXIC) at the alpha of its advance in 1995, to its aiguille in 2000, to its huge abatement in 2002. Data is taken from Yahoo! Accounts Historical Prices accessible at http://uk.finance.yahoo.com/q/hp?s=^IXIC.
Aharon, D.Y., Gavious, I., Yosef, R., 2010. Banal bazaar balloon furnishings on mergers and acquisitions. The Quarterly Review of Economics and Finance, 50(4), pp.456-470.
Buffett, W., 2000. Warren Buffet’s Letters to Berkshire Shareholders. Berkshire Hathaway Inc., 1 March
Berlin, L., 2008. Acquaint of Survival, From the Dot-Com Attic. The New York Times, 21 November.
Cooper, M. J., Khorana, A., Osobov, I., Patel, A. and Rau, P.R. , 2005. Managerial Actions in Response to a Bazaar Downturn: Valuation Furnishings of Name Changes in the Dot.com Decline. Journal of Corporate Finance, 11(1-2), pp. 319-335.
Foley, S., 2012. Is the dot com balloon about to burstThe Independent, 4 August.
Goldfarb, B.D., Kirsch, D., Miller, D., 2006. Was There Too Little Entry During the Dot Com EraRobert H. Smith School Analysis Cardboard No. RHS 06-029, 24 April.
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Metrick, A., 2007. Adventure Basal and the Accounts of Innovation. New Jersey: John Wiley & Sons, Inc.
Mintel, 2010. Advance Bonds: Mintel business report. February 2010. London:Mintel International.
Niederhoffer, V. And Kenner, L. 2003. Practical Speculation. New Jersey: John Wiley & Sons, Inc.
Parsons, A., 2012. Tech firms apprentice acquaint of dotcom bubble. The Allotment Centre, 10 June.
Pilbeam, K. and Nagle, F., 2009. High-Tech IPOs in the US, UK and Europe afterwards the Dot-Com Bubble. International Journal of Banking Services Management, 4(1), pp.64-75.
Tran, M., 2002. WorldCom accounting scandal. Guardian, 9 August.
Vass, S., 2012. The new dotcom bubbleSunday Herald, 13 May.
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