Collapse of the Bubble
Fundamentals of E-Commerce
In 1993 British computer scientist and engineer, Sir Tim Berners-Lee created something that would forever change the world; the World Wide Web. The World Wide Web, abbreviated WWW is a system of interlinked hypertext documents accessed via the Internet. Not only did the World Wide Web enable the spread of information over the Internet easily and in a format that was free for everyone to use, but it’s what many believe made the internet itself so popular. The World Wide Web sparked a series of events that made millions rich through competition and stocks and began wars with internet giants. It hit its peak in March of 2000 and then something happened (Berners-Lee, 1999). Internet based companies, also referred to as dot-coms, all over that world profited from the commercial growth of the World Wide Web. Stocks for these companies were through the roof. Investors couldn’t wait to throw their money at the next big thing. The allure of getting rich quick and the confidence that came with this new technology made it easy for many to overlook all of the risks. Some of the companies that began during this period are ones that we see every day. Google was one the many companies that did not see any profit in the beginning of this boom. They spent whatever money they had expanding their companies and creating ways to become more profitable, but there were also companies that had little to nothing to offer. They had a dot-com at the end and that was it. There was no business plan, no model, and often times no product, just an idea. While internet based companies and entrepenurers were busy spending lavishly the Federal Reserve began increasing interest rates. There was a reported 6 increase between 1999 and 2000. Finally, in March of 20, 2000, shortly after the NASDAQ peak, the dot-com bubble burst and the NASDAW fell. By March 20, 2000, the NASDAQ lost more than 10%. The bubble began to deflate at a rapped speed (Lowenstein, 2004). The following is an illustration of dot-com bubble burst:
With the deflation f the bubble, many companies filed bankruptcy. Others merged together in hopes of gaining back what they had lost. The crash of the stock market in between 2000 and 2002 made it even more difficult for internet companies to stay afloat. Stocks continued to plummet.
Companies like Google, Ebay and Amazon were part of several dot-com companies that flourished despite losses during the collapse. They invested the money they had into constant improvement and worked off an accurate business plan.
Other companies were not so fortunate. Pets.com took major losses during this time period. Investors laid down almost 82.5 million only to see it fold under 9 month later. The company was losing money on almost every item that is sold. By the third quarter of 2000, there was a reported negative gross margin of $277,000. By the end of the last full quarter, Pets.com lost an estimated $21.7 million on $9.4 million in revenue (Haig, 2005). Another big looser during the dot-com collapse was Priceline.com. Jay Walker, once at the top of Forbes World’s Richest People in 1999 lost a reported 9.3 billion during the dot-com crash. As the founder of Priceline.com, Jay Walker at one point barely had enough money to cover expense and laid off a large number of employees which resulted in a lawsuit with one of