What Was the Dot-Com Bubble?

Koff Clippy no one likes you hello everybody welcome to another episode of business plays I as always am your host Simon today as always danny has written us an article all about the dot-com boom we're gonna go through it it's easy to forget just how exciting the internet was back in the 90s when it first started making sputtering noises down our telephone lines it was Iran one of the first things I was excited about was how easy it was to get cheat codes for those original grand theft auto games like before you'd have to spend like four pounds on a magazine and look in the back for cheat codes then you could go on to like cheat code central I think it was called and just grab as many treats as you wanted it was awesome it's also quite a personal sobering thought that any young viewers of this video may not even have been born when the internet first started slowly chugging and churning its way into millions of homes across the world when did that start was it like I was born in 1987 was that really happening back then so definitely don't we didn't I didn't have it like when I was a young kid it sometimes equally hard to remember what we did in those very early days this was before Facebook before Twitter before Wikipedia before YouTube even before Simon wissen Thank You Danny in fact it was before nearly all the platforms that we're likely regularly using today yeah there's definitely maybe like BBC News was back it was around back when the internet started out that's probably the only website that I used that was back around back then if anyone has any good examples of websites that have stuck around that are still commonly used today there were arounds LS say like 1995 it post them below the internet felt more like a blank canvas that we hadn't quite figured out how to properly use yet in the meantime we were building our own rubbish websites and blindly stumbling around dodgy online chat rooms until somebody could tell us what we should be doing yeah anyone else made a website with Geocities back in the day abetting us not just me the world of business was equally excited about the untapped commercial potential of the emerging Internet leading to a massive surge in share prices of internet-based startups on the Nasdaq Stock Exchange this frenzy period of heavy investing now goes by different names the dot-com boom that com bubble the tech bubble at that time when all the share prices of internet-based companies went up really high and then went really low again because of course the bubble did eventually pop and most those businesses went bust resulting in the loss of billions of dollars but what exactly went wrong with the dot-com boom from the perspective of the Nasdaq Stock Exchange things were looking pretty promising during the growth bubble between 1994 and 2000 well of course they like you promised it was during the growth of say hey the markets going up whoo it will never go down as the second-largest Stock Exchange in the world after the New York Stock Exchange the Nasdaq is primarily known as the place to trade in high tech high growth and some might say volatile stocks it was always going to make a perfect home for a flood of new internet-based starter companies that surfaced through the 90s and by the way I'm betting the number of parallels were gonna see throughout this article with what's going on today in 2019 is gonna be high already like it was a great place for new internet internet companies that were emerging through the 90s and today investors were positively itching to latch onto the next big thing and just couldn't throw enough money shiny new Internet companies by 1999 39% of all venture capital investments were getting dished out to internet startups the Nasdaq rose 5 fold during this period hitting an all-time high in the year 2000 but when the bubble burst later on that year the Nasdaq dropped dramatically eventually losing 77% of its value since the peak over half the new startups went under including some really big hitters as many of the companies which had previously been valued at millions of dollars were now valued at absolutely nothing and by the way I should say just before we really get into it today that this was actually a viewer suggestion I think I mentioned in the video about AOL that if anyone wants to learn about the dot-com bubble we would so if you've got suggestions or leave them below vote up the ones you like and well I'll get Danny to write something and we can learn about it together if they're interesting if they're boring I just wait thanks for playing the simple answer is that everyone investors and business owners alike completely lost the plot investors seem today as a long period of panic investing during the boom I didn't even know panic investing was of things like I know I've got so much money what do I do with it internet-based companies were seen as a lucrative future they may not have all been making piles of money at the time but the assumption was they be raking in billions very soon as the commercialization and monetization of the internet took shape so investors quickly became scared of missing out on the gravy train ah it's like FOMO see I like who these internet companies but if I don't invest my ten dollars how am I ever gonna make a million instead of investing in intensively research companies they just started wildly throwing stacks of money at any old booth had calm after the name seriously yeah I remember this happening people just thought this is the next big thing is gonna be Scott come after it give them some money well some companies were obviously more credible than others many investors were giving millions of dollars to new startups there were little more than idea on a bear mat like I said there are definitely parallels going on today like I've talked to people and I've read stories and all of this stuff where it's like someone has an idea for a business and the next thing they know they've got like half a million dollars in seed capital just try it out no customers no profits nothing just like hey I've got this idea it's like it's Airbnb for mo x fame half a million I bet there is Airbnb for mo x some of these companies were just a website with a name there was no business model no customers no clear strategy for generating money in the future just a blind hope that all the investors would eventually become rich one day when they could because the company just said calm in the title it seems that common sense went right out of the window the attitude of the new company owners didn't really help matters many of them suddenly became millionaires overnight from heavy investments in their business ideas that were near generating any money the general consensus behind the dot-com theory was that if a new internet company was to survive and grow it first needed to focus on rapidly expanding its customer base oh my god the parallels the number of apps the number of businesses the number of websites that are just focused on customer acquisition of the cost of everything else today not back in 1999 is just the same this often involved spending about 90% of the capital on widespread marketing with the expectation of huge initial losses in the short term but massive profits for all of those at the end of the cyberspace rainbow we all know now how that worked out the rest of the capital often got spent on big salaries plush new officers and funky swivel chairs the cost of $5,000 apiece well I suppose when the company goes bankrupt at least you can sell your fancy swivel chair although then the economy is bad too no one wants to spend $5,000 on a chair after all these guys work on millionaires now they could afford a bit of luxury not for long fellas the result from all of this was billions of investment dollars that were getting thrown away on promoting new companies that weren't actually going anywhere and didn't look like they were gonna generate money anytime soon it took a while for the market to catch on that all of this might have been a bad idea following the peak things got a little twitchy when the tech industry went through a bad news period later in 2000 the AOL Time Warner merger talked about that in my video about AOL I'm gonna link to that below that was questioned by analysts while Microsoft was found guilty of monopolization of the market the company such as Dell and Cisco suddenly started selling their own shares that is never a good sign as Wall Street press began publishing warning stories that the dot-com bubble seemed to be all hot air with no real credibility of prospect of yielding a return and this is like yet this is all it takes big investors started to rethink their strategy and withdraw their investments quickly leading to a panic sell of shares across the hold industry I just kick something off and then everything tumbles down in a very short space of time many of these companies has suddenly lost all of their advertising dollars which was the only thing meant to be pushing their company forward in many cases a company had started out with a value of zero rapidly become worth hundreds of millions of dollars blown millions of investors dollars on advertising and then fallen right there down to zero again there are some big names that went under the online pet supply store pets comm had been pretty well known at the time thanks to the popularity of its funky sock puppet mascot which appeared in a high-profile marketing including TV advert broadcast during the lucrative 2000 Superbowl commercial break it is easy matter at the time that pets comm we're spending eleven point eight million dollars on marketing but only generating wait for it six hundred and nineteen thousand dollars in revenue they were certainly pulling in plenty of new customers with bargain deals but they were doing this by selling many of the products for a third of the price that it costs to acquire them yeah no wonder if there's a pet website and it's like yes it's way cheaper than everywhere else of course they're gonna shop there especially if it's cheaper than wholesale the business was of course optimistically looking to the long future after it had build up its customer base but the rug was pulled under and out from underneath the company's feet in late 2000 after burning through over 300 million dollars of investors money and eventually going into liquidation and also they're like yeah it's gonna be great in the future right right well guys at some point you're gonna have to sell stuff to actually make a profit so your prices are gonna go up and then I'm gonna be like now just I'll just find somewhere cheaper off shop at my local store or any reason that's more convenient than pets calm doesn't seem like a great business strategy customer acquisition isn't everything it wasn't all bad news though well good the sock puppet survived the crash this is it and went on to appear in commercials for an American automotive loan firm alongside the slogan everyone deserves a second chance well at least the people liquidating that company it's like well what have we got we've got some fancy swivel chairs we've got this sock puppet we'll sell the sock puppet and then I'll go back to the investors maybe that'll give them their three hundred million dollars back boo comm terribly names was another famous casualty of the dot-com boom styling itself as a futuristic online retailer of sports and fashion brands website visitors were helped along by a friendly virtual a soffit shopping assistant called miss boo miss boo sounds like Clippy hi it looks like you're trying on clothes Goff Clippy no one likes you but I think pipi was a dude I'm could beat all the distinctive idea behind the website was that you could pop your chosen clothes on to virtual 3d body models to review the results and see if that tweed blazer was really going to cut the mustard in your wardrobe this doesn't sound like a great idea and it definitely doesn't sound like a great idea running on like 2000's technology even today clothing shops will ship you out of the clothes to try on and offer free returns because everyone knows that online 3d models it's just not the same also it is just an online 3d model why not just show real models wearing the clothes the technology cost six million dollars to build and half a million dollars to Panama to maintain every single month fuelled by keen investors Budokan spends a further 25 million dollars on marketing before they even had any products you sell and then another a hundred and thirty-five million on marketing when the website had supposedly gone live supposedly unfortunately due to timing issue the website wasn't quite ready on time and many curious visitors were just greeted with a holding beige even when the website was up and running it took ages to load was plagued by technical issues and was ultimately a clumsy and awkward experience for shopping after squandering all those millions on advertising the generated revenue from customers fell spectacularly short of expectations and the liquidators were soon called in look III know I'm kind of viewing this with a great deal of skepticism and hindsight is 20/20 and all that but really of course not every internet-based company crashed and burned Google eBay Amazon they all took a massive hit at one point Amazon's value drops by a staggering 90 percent but they all managed to weather the storm and are still around today through shoed accounting and stronger business strategies that were based on something a little more solid than just blind hope you might even have heard of a few of them but if there's one good thing to have come out of this sorry mess is that the industry has learned it's lesson and this could never happen again in a million years this is definitely gonna happen again this video's going out I'm recording this on the 2nd of October 2019 this is gonna happen again according to analysis by the Warrington College of Business at the University of Florida the number of unprofitable companies on the US Stock Exchange has now reached a record high with 81% of listed companies making a loss there are and it's an increment the economy is doing great 81% are making a loss in 2019 it's October the economy is amazing guys what's gonna happen when the economy's not amazing anymore because there's gonna happen there are obvious parallels here to be drawn with the dot-com boom although this time rounds it would probably go down in history as the app boom ride hailing apps such as uber and lyft are just two examples of apps which currently generating massive investments but aren't yet profitable could we be heading for another crash well we're always heading for another crash because the business cycle goes up and down it doesn't just go doesn't always just go always up it's always gonna come down we're always headed towards crash and then after that we're always heading towards a boom so yes when is the big question this has been business blaze I do hope you enjoyed this episode thank you for whoever suggests or I think I suggested this and everyone said it was so we made this the video I'd recommend checking out now if you enjoyed this one and haven't seen it yet is the AOL video which I will link to below Thank You ver like button subscribe hit the bell all of that good stuff and I'll see you next time

Channel: Business Blaze

Views: 146,914

Rating: 4.8739219 out of 5

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Id: KD0mDrZLXK8

Length: 13min 40sec (820 seconds)

Published: Wed Nov 13 2019