The dot-com bubble refers to an internet company stock market bubble that began around 1995 and burst in 2000. Over those five years, the Nasdaq climbed from 1,000 to more than 5,000 points—reaching its peak in March 2000.
In the early to mid-1990s, as the internet was becoming a larger part of everyday life, the buzziest startups of the era were "dot-com companies"—companies that relied on the internet (and its most common domain) to do business, like Amazon. Investors and venture capitalists couldn't get enough: At the height of the bubble, venture capital deals totaled more than $25B per quarter. Despite the influx of capital, many dot-com companies weren't generating enough revenue, often operating at net losses between $10M and $30M a quarter.
Several major tech companies, including Dell, Cisco, and Microsoft, began selling off technology stocks. Investors were spooked and began withdrawing their money. Between March 2000 and October 2002, the Nasdaq dropped 76% to 1,139.90.
Many dot-com-era companies shut down, but some are still around—like Amazon, PayPal, and Google. These companies are largely credited with surviving the dot-com bubble because of their focus on long-term, scalable growth.
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Between 1995 and 2000, the Nasdaq index jumped from 1,000 to 5,000 amid excitement over new Internet companies. As venture capitalists dumped money into startups, those same companies struggled to turn a profit, leading to a bubble. The Nasdaq wouldn't reach its former high until 2015.
Pets.com—an e-commerce pet store webpage—is a prime example of dot-com companies burning through investments. Despite being a popular and well-known brand, the company struggled to generate enough revenue to become profitable. After raising approximately $82.5M in its February 2000 initial public offering, Pets.com filed for bankruptcy in November of that same year.
The company behind the browser that revolutionized search went public on August 9, 1995. Just before the IPO, the company increased its initial opening price from $14 to $28. On the day the company went public, shares traded as high as $71 before closing at $58.25. The company's market capitalization exceeded $2B. The eye-popping IPO is largely considered the beginning of the dot-com bubble.
Pets.com used a sock puppet decorated like a dog (operated by comedian Michael Ian Black) as the company's mascot. The sock puppet became synonymous with the brand. An auto lender company called BarNone Inc. later purchased the sock puppet for $125K and rebranded it with the slogan "Everybody deserves a second chance."
As the dot-com bubble reached its peak, most dot-com companies went public with little proof of being profitable and were often overvalued. In 1999, the Nasdaq's price-to-earnings ratio (a tool used to determine a stock's value that divides its price by earnings) hit 90.2, signaling that many companies were operating at a net loss. Startups promised investors that more time and money would help scale their businesses and become profitable.
The people who bought the original domains for dot-com companies and had the ideas to start businesses were often bought out by investors before becoming well-known companies. Both Pets.com and Broadcast.com were acquired early on.
Companies that primarily used the web as a platform for doing business were more vulnerable than companies that created technology. While hardware and software companies managed to make it to the other side, most e-commerce companies took a brutal beating and share prices plummeted.
Len Bosack and Sandy Lerner were both computer scientists at Stanford University in 1984 when the pair created a router that connected computers on different networks. The pair asked for Stanford's permission to manufacture the router, but the university declined, and the couple decided to leave their jobs to launch Cisco, one of the tech companies that powers the internet.
During the 2000 Super Bowl game, 17 dot-com companies paid $44M total for ads. Just the next year, only three dot-com companies ran ads in the game. The significant drop reflects just how hard the crash hit dot-com companies and how unsustainable the businesses were.
Parties hosted by dot-com companies were known to be extravagant and expensive. Technology companies in the Bay Area hosted between 15 and 20 parties a week on average, which cost between $30K and $50K on average.
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