Wednesday, January 2, 2013

Is the Dot-Com Bubble 2.0 on its Way?


 The First Dot-Com Bubble

    The dot-com bubble (aka Internet bubble) refers to the time period between 1995 and early spring of 2000, when the American economy underwent through a considerable boom, fact reflected in the increase in stock prices, especially the one associated with Internet-related assets [1]. The principal fuel for dot-com bubble seems to be the Internet and its huge potential for high-tech as well for non-high-tech companies. Data were communicated in real time at affordable prices, through web sites companies were having the potential of being known and of reaching potential customers all over the world, universities and companies could easier collaborate. It was the naissance of Internet phone, multicasting, e-commerce and e-auction portals, online banking and collaborative tools. The enormous potential was increasingly reflected in the news. Forbes and Wall Street Journal were encouraging people to invest in risky companies [4]. The public awareness was increasing [1], and the offer was huge. If previously a company needed to have had at least several profitable quarters before it went public, by 1999 the restrictions were relaxed considerably, it was enough to have a sketchy business plan, an Internet address and a few people who could speak the right jargon [1]. Numerous start-ups entered the marked over night, their entry being facilitated by the lower entry cost associated with the innovation [3], the sudden appearance of new niche markets and the demand coming from early adopters, eager to make most of the new technologies.

    Many start-up companies like Google, Amazon or Netscape haven’t made a profit during the first years, however the high IPO value of their stocks allowed them to raise a substantial amount of money [4]. As the stocks of many companies were skying high, more and more money were pushed in the economy, many of the investments being driven by the mirage of getting rich over night. The investments in software, computer and communication equipment companies grow, IT becoming an important component of the US economy [2]. In fact, by October 1999, the stock value of the six biggest IT companies – Microsoft, Intel, IBM, Cisco, Lucent and Dell - was 20 percent of the US GDP [5]. Cities in US, trapped by the dream of becoming a new “Silicon Valley”, invested in their communication infrastructure and built network enabled offices to attract internet entrepreneurs [4]. Europe joined the rush as well, telecommunication companies investing in 3G licenses [4], companies were expanding to accommodate the increase demand coming from US.

   Excessive IT investment, overconfidence and other factors made the bubble to burst in the spring of 2000. It was a turning point for the American economy as well for Europe, the dot-com stocks falling down, following the exit and bankruptcy of many dot-com companies. It was also the chance for other IT and non-IT companies to take over the assets of fallen companies. It was the time for acquisitions and mergers in order to survive the crisis. It was an opportunity for innovation to propagate and workforce to migrate from company to company. The investments in IT infrastructure continued moderately also after the burst, the economy revigorating itself slowly but steadily.

The Second Dot-Com Bubble?
   Marc Andreeson, founder of Netscape, pointed out recently that “the ideas on the internet in the 1990s are all happening now” [7], and he seems to be right. The overevaluated IPOs of social networking companies like LinkedIn, Facebook or Groupon [6] seem to support the premises of a second dot-com bubble (aka dot-com bubble 2.0, to follow the trend, social networking bubble or social media bubble). Of course, social networks companies have a huge potential especially in what concerns the harnessing of collective intelligence and the diffusion of information, with application in multiple domains, but there is lot of work ahead until harnessing this potential. The boom of fancier and miniaturized electronic devices, plus the promises of Social Media, Web 2.0 and thinking further of the Semantic Web (aka Web 3,0), Big Data, Cloud Computing, Personal Cloud, Integrated Ecosystems, Enterprise App Stores and other technologies (e.g. in-memory computing, HTML5, Silverlight) seems to multiply exponentially the value of data, technology and networks. There are lots of opportunities for companies to appear over night, for small and average companies to grow, and for big companies to consolidate their position on the market. There is also lot of optimism in what concerns the future of the Web on one side, and the Web-centric organizations and business models on the other side, but is this optimism entitled? Could the boom of these technologies corroborated with the “this-time-is-different” syndrome and ignorance of history, facilitate the appearance of a second Internet bubble?  For sure that’s possible, but hopefully it won’t become reality, at least not in the near future. Hopefully the markets have learned something from the past…

Beyond Bubbles

  Despite the negative effects the dot-com bubble had or might have at micro and macro level, I strongly believe that on the long term economies have the capacity to recover, and sometimes such bursts are necessary for the restructuring and re-leveling of values. Despite any future crisis, the Internet will continue its development fueled by the need for more capable technologies and, where technologies and needs are, investments more likely will follow.

[1] G. Callahan, R. W. Garrison () Does Austrian Business Cycle Theory explain the Dot-Com Boom and Bust? [Online] Available from: (Accessed: 31.08.2012).
[2] Wikipedia (2012) Web Development. [Online] Available from: (Accessed: 31.08.2012).
[4] Wikipedia (2012) Dot-com bubble. [Online] Available from: (Accessed: 01.09.2012).
[5] M. Buttel (2010) 10 Years On: When the bubble burst. Financial Services Technologies. [Online] Available from: (Accessed: 01.09.2012).
[6] North American Value Investing. (2012). Are We in Another Dot Com Bubble? [Online] Available from: (Accessed: 02.01.2013)
[7] D. Soskin, (2012) Is the dotcom bubble 2.0 set to burst? [Online] Available from: (Accessed: 02.01.2013)

Note: The current post was adapted after my assignment submission for the Internet History Technology and Security Coursera Course.