Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

The Dot-Com Bubble by lindash

VIEWS: 503 PAGES: 17

The Dot-Com Bubble

More Info
									   ZITE3104 :: E-Commerce :: ZGEN2104




The Dot-Com Bubble

Those who ignore history…
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 2009   ZITE3104 :: E-Commerce :: ZGEN2104   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 2009         ZITE3104 :: E-Commerce :: ZGEN2104   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
Peters (2004) ‘History of the Internet – the Dotcom bubble’, NetHistory, http://www.nethistory.info

October 2009                       ZITE3104 :: E-Commerce :: ZGEN2104                                 4
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


     Wikipedia (2009) ‘Dot-com bubble’, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble

October 2009                     ZITE3104 :: E-Commerce :: ZGEN2104                              5
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
     Wikipedia (2009) ‘Dot-com bubble’, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble

October 2009                     ZITE3104 :: E-Commerce :: ZGEN2104                              6
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 XXXXIV
• And on the stock market: day traders!
     Wikipedia (2009) ‘Dot-com bubble’, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble

October 2009                     ZITE3104 :: E-Commerce :: ZGEN2104                              7
The Bubble Bursts
• 1999 – early 2000 US Fed
  raised interest rates 6
  times
• March 10, 2000 –
  NASDAQ Composite
  5048.62                                                                       = $5 trillion!
• Mon March 13, $multi-bn
  sell of IBM, Cisco,
  Microsoft and others
  (coincidentally)
• NASDAQ drops 4%
  before trading
  commences!                                                      The NASDAQ, 1994-2008
• By March 15, down 9%
     Wikipedia (2009) ‘Dot-com bubble’, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble

October 2009                     ZITE3104 :: E-Commerce :: ZGEN2104                              8
The Bubble Bursts
• At the same time, Dow Jones peaked on
  Jan 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”
     Wikipedia (2009) ‘Dot-com bubble’, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble

October 2009                     ZITE3104 :: E-Commerce :: ZGEN2104                              9
The Bubble Bursts
Communications
Companies                                           Significant dot-coms
• AOL                                               • Boo.com
• WorldCom                                          • Broadcast.com
• NorthPoint                                        • e.Digital Corporation
  Communications                                    • eToys
• Global Crossing                                   • Freeinternet.com
• JDS Uniphase                                      • GeoCities
• XO Communications                                 • GovWorks.com
• Covad Communications

     Wikipedia (2009) ‘Dot-com bubble’, Wikipedia, http://en.wikipedia.org/wiki/Dot-com_bubble

October 2009                     ZITE3104 :: E-Commerce :: ZGEN2104                              10
Lessons from the Bubble
• Fundamentals don’t lie
      – If the business model doesn’t make real
        money, don’t buy it!
• Recognise stock market momentum
      – If trading/short-term investing, get your profit
        and get out
• Life-altering changes don’t happen
  overnight
  The Investor’s Journal.com (2007?) ‘Lessons from the Dot-com bubble’, The Investor’s Journal,
  http://www.theinvestorsjournal.com/lessons-from-the-dot-com-bubble/
October 2009                     ZITE3104 :: E-Commerce :: ZGEN2104                               11
10 Dot-Com Flops
• Webvan (1999 – 2001)
      – Even if you’ve got a good idea, don’t 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!)
          German (2008) ‘Top 10 dot-com flops’, CNET.com, http://www.cnet.com/

October 2009                    ZITE3104 :: E-Commerce :: ZGEN2104               12
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
          German (2008) ‘Top 10 dot-com flops’, CNET.com, http://www.cnet.com/

October 2009                    ZITE3104 :: E-Commerce :: ZGEN2104               13
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
          German (2008) ‘Top 10 dot-com flops’, CNET.com, http://www.cnet.com/

October 2009                    ZITE3104 :: E-Commerce :: ZGEN2104               14
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
          German (2008) ‘Top 10 dot-com flops’, CNET.com, http://www.cnet.com/

October 2009                    ZITE3104 :: E-Commerce :: ZGEN2104               15
More Lessons
Failure                                              Success
• Unoriginal business model                          • Find a niche
     – Existing idea translated to                         – Management team with
       the web                                               knowledge/experience
     – The ‘Free’ business model                           – A sensible, unique product
                                                           – A large enough market
• Too much money, too
  soon                                               • Customers!
                                                           – “customer relationships built
• Poor customer strategy                                     upon mutual advantage and
• Reliance on advertising                                    trust”
  for profits                                        • Ability to diversify
• Profits are essential                                    – Multiple revenue streams
                                                     • Branding
           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
October 2009                        ZITE3104 :: E-Commerce :: ZGEN2104                    16
           Antonio): §411d. ISSN: 1542-7382
Conclusion
• If you’re 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
      – Don’t expect to do better than an ‘ordinary’
        business
October 2009                ZITE3104 :: E-Commerce :: ZGEN2104   17

								
To top