Money For Nothing

This graph tracks the growth of internet users,
which started to explode in the mid-90's 

Despite the title, some readers might be disappointed to know this post has nothing to do with the Dire Straits (Although there probably is a play on words here to do with the dot-com bubble). The mid-1990’s saw the number of internet users grow exponentially and this was seen by many companies, and entrepreneurs, as a large pool of potential profit-generating individuals. Firms promised customers and investors that this was the beginning of a “new world”. Internet start-ups started appearing everywhere you could look, with many engaging in new and untried business models to try and capitalise on the potential within the market.

Many firms went for a, “growth first, profit later” approach, with the belief that if they could capitalise on a particular niche in a market, they could then make profit once their customer base was established. There are sensible and non-sensible ways to grow quickly though, and many didn’t adopt particularly sensible practices. For example, some companies undercharged for the shipping on items, taking huge losses in order to try and gain market dominance.

These dot-com companies were funded by over-zealous investors who were giving cash to companies who didn’t know what to do with it, because at the time internet start-ups were seen as being the future, and everyone wanted a piece of the action. Reality set in on March 10^th 2001 however, with the Nasdaq Composite Index peaking at 5,132.52 and then falling dramatically.

The bursting of the dot-com bubble wiped out billions of dollars in market value. With the market falling around them, many dot-com companies fell too, but not before burning through what remained of the venture capital they had raised. Like previous bubbles, the value of the dot-com companies fell from their ridiculously high values pre-crash, in an event that could have been predicted by market traders. But this bubble, like so many others, was punctuated by greed with too many people chasing easy money without considering their actions, or the events of the past.