The Dot-Com Bubble

Those who ignore history

ZEIT3104 :: E-Commerce /
E-Business :: ZEIT8114
Objectives
Briefly review the facts of the dot-com
bubble
Look more closely at the start of it
Companies in the Bubble
Look closely at the end of it
What lessons can we learn from it?
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 2
The Dot-Com Bubble
A speculative bubble in stock market
1998 2001 (peak on March 10, 2000)
Companies stock prices were inflated just
by adding e- or .com to their name
Collapse of stock values saw collapse in
large number of companies
And big lay-offs in IT industry
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 3
Where the Bubble Began
Al Gore 1993 Information Super-
highway
Not (then) intended as Internet-based!
All about interactive TV (on cable TVs)
Even Microsoft thought this was the future
Network-connectivity for personal
computers changed all that
WWW offered attractive interface to network
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 4
Peters (2004) History of the Internet the Dotcom bubble, NetHistory, http://www.nethistory.info
Companies in the Bubble
Venture capitalists saw the market
reaction to .com
Mitigated risk by starting many contenders
Many entrepreneurs had a real business
model and the skills to deliver it; but many
did not
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 5
Wikipedia (2009) Dot-com bubble, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble
Companies in the Bubble
Classic business model:
Leverage network effects
Run at a loss to build market/mind share
Later exploit large market share with realistic
charges
Strategy: Get big fast, Get large or get lost
Novelty of technology made pricing shares
difficult
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 6
Wikipedia (2009) Dot-com bubble, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble
Companies in the Bubble
Insane valuations led to strange behaviour
Unpaid executives relying on stock options
Expensive staff parties and other morale
gimmicks
Casual dress code; bizzare workplace
arrangements; flexible working hours
17 companies paid $2m each for 30sec ad
in SuperBowl XXXIV
And on the stock market: day traders!
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 7
Wikipedia (2009) Dot-com bubble, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble
The Bubble Bursts
1999 early 2000 US Fed
raised interest rates 6
times
March 10, 2000
NASDAQ Composite
5048.62
Mon March 13, $multi-bn
sell of IBM, Cisco,
Microsoft and others
(coincidentally)
NASDAQ drops 4%
before trading
commences!
By March 15, down 9%
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 8
The NASDAQ, 1994-2008
= $5 trillion!
Wikipedia (2009) Dot-com bubble, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble
The Bubble Bursts
At the same time, Dow J ones peaked on
J an 14, 2000, then reversed; S&P 500
peaked on March 24, 2000.
Several related drivers proposed:
Interest rates had cooled the economy
Poor results for Christmas 1999 trading
Y2K prevented
Dot-bombs, dot-compost, dot-shells
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 9
Wikipedia (2009) Dot-com bubble, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble
The Bubble Bursts
Communications
Companies
AOL
WorldCom
NorthPoint
Communications
Global Crossing
J DS Uniphase
XO Communications
Covad Communications
Significant dot-coms
Boo.com
Broadcast.com
e.Digital Corporation
eToys
Freeinternet.com
GeoCities
GovWorks.com
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Wikipedia (2009) Dot-com bubble, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble
Lessons from the Bubble
Fundamentals dont lie
If the business model doesnt make real
money, dont buy it!
Recognise stock market momentum
If trading/short-term investing, get your profit
and get out
Life-altering changes dont happen
overnight
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 11
The Investors J ournal.com (2007?) Lessons from the Dot-com bubble, The Investors J ournal,
http://www.theinvestorsjournal.com/lessons-from-the-dot-com-bubble/
10 Dot-Com Flops
Webvan (1999 2001)
Even if youve got a good idea, dont grow too
fast too soon
Pets.com (1998 2000)
Advertising, no matter how clever, cannot
save you
Kozmo.com (1998 2000)
Order online, free delivery! (Free delivery
costs too much!)
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German (2008) Top 10 dot-com flops, CNET.com, http://www.cnet.com/
10 Dot-Com Flops
Flooz.com (1998 2001)
What were they thinking?-type idea; online
currency (see also Beenz.com)
eToys.com (1997 2001)
Vigorous competition in well-established
market costs money; lots of money!
Boo.com (1998 2000)
UK failure; poor management, terrible web-
site, failed to manage global issues
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 13
German (2008) Top 10 dot-com flops, CNET.com, http://www.cnet.com/
10 Dot-Com Flops
MVP.com (1999 2000)
Celebrity endorsements do not a business make
Go.com (1998 2001)
Failure to achieve predicted network effects
(nobody came!)
Kibu.com (1999 2000)
Pulled the pin 46 days after launch party!
Investors withdrew support given (stock) market
conditions
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German (2008) Top 10 dot-com flops, CNET.com, http://www.cnet.com/
10 Dot-Com Flops
GovWorks.com (1999 2000)
Concept: Intermediary between citizen and
municipal government (remove red tape!)
A company implosion, documented in the film
Startup.com
Two friends start business, the idea takes off,
suddenly very rich and very influential
BUT, friends fell out under pressure,
technology was stolen, website never worked
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German (2008) Top 10 dot-com flops, CNET.com, http://www.cnet.com/
More Lessons
Failure
Unoriginal business model
Existing idea translated to
the web
The Free business model
Too much money, too
soon
Poor customer strategy
Reliance on advertising
for profits
Profits are essential
Success
Find a niche
Management team with
knowledge/experience
A sensible, unique product
A large enough market
Customers!
customer relationships built
upon mutual advantage and
trust
Ability to diversify
Multiple revenue streams
Branding
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Ortiz (2002) Criteria Leading to the Rise and Fall of the Dot-Com. In The
Proceedings of the Information Systems Education Conference v 19 (San
Antonio): 411d. ISSN: 1542-7382
Conclusion
If youre starting a business, include an
online strategy in your thinking
If you want to start an e-business:
Have a good idea
Test it with friends and experts
Work diligently on building the business
Manage your costs
Raise your profile/reputation
Dont expect to do better than an ordinary
business
October 2010 ZEIT3104 :: E-Commerce / E-Business :: ZEIT8114 17