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30-06-2015, 05:12

The Dot-com Revolution

The dot-com revolution refers to the period spanning the late 1990s through the spring of 2000,when Wall Street, corporate America, the general public, and the media caught a wave of euphoria generated by the Internet and the use of high technology for business purposes. Numerous factors all came together to create an “Internet bubble” of market speculation and frenzied investment, primarily small investors who could use Web-based trading sites to buy and sell stocks easily.

The ensuing stock market boom revolutionized the way businesses operated by providing the capital to invest in new technology. Perhaps more importantly, the dot-com revolution fundamentally changed the way people communicated through Internet-based technologies, such as e-mail, message boards, chat rooms, and others. Thus, despite the failure of most dot-com companies, the transformation continues through the use of technology and the Internet for business purposes.

In its broadest sense, the dot-com revolution served as a massive growth engine for the U. S. economy. For the first time in recent memory, the power and mystique of small, entrepreneurial companies dwarfed that of established corporations. Given the public’s willingness to invest in Internet-based startups, their valuations soared.

Finally given the chance at riches gained from stock options and participation in initial public offerings (IPOs), workers flocked to dot-coms, despite the risk involved. Added to the possibility for quick riches, the quirky, decentralized culture of dot-com companies drew Generation X workers in droves. The media added fuel to the mass exodus from the Fortune 500 by regaling readers with stories of office foosball tournaments and game rooms, company-sponsored espresso machines, and a constant state of “business casual” clothing. Dot-com entrepreneurs were also able to promote work as a way of achieving a more spiritual or fulfilling state, which appealed to the sullen masses of workers awash in endless rows of drab, gray cubicles in the nation’s large companies. Startups were seen as antiauthoritarian and laid-back, mirroring the lifestyle exuded in northern California since the 1960s.

The dawn of the dot-com revolution is most often linked to the premiere of the first graphics-based Web browser in early 1993, developed by Marc Andreessen, a young computer science student at the University of Illinois, and a team of researchers at the school. The Mosaic browser enabled people to surf the Net more easily and removed much of the “computer geek” mentality associated with the medium, which had ironically been created by the federal government in the late 1960s as an alternative means of communication in case of a catastrophic event. Andreessen’s innovation married images, graphics, and text on the Internet and vastly improved its popularity. Soon, people began creating personal homepages, and businesses began using the Net to advertise their products and companies.

After Mosaic was released, Internet traffic increased 341,631 percent (Kaplan 1999). In 1994, Andreessen joined with computer industry veteran Jim Clark to form Netscape, one of the Web’s pioneering companies. That same year, Time ran its first cover story on the Internet. By early 1995, a Business Week survey estimated that 27,000 Websites existed, with the number doubling every two months.

In early August 1995, Netscape went public, and Clark’s shares were worth $565 million, making him one of the wealthiest men in the United States and coining the phrase “Internet millionaire.” By the end of the year, the company’s stock reached $170 a share, making it worth nearly $6.5 billion. Netscape’s IPO success turned the Internet into the new Wild West, a place where fantastic wealth could be created—a capitalist nirvana on the western edge of the country, just as it had experienced during the gold rush days in the mid-1800s.

Although Netscape helped make the Internet user-friendly, the company most associated with the dot-com revolution is Amazon. com, an online bookseller and consumer goods store based in Seattle. Founded by Jeff Bezos, a former investment banker, Amazon was the first to use the “.com” suffix. Bezos’s “get big fast” attitude with little care about profitability embodied the get rich fast mentality of the Internet. The main tenet of the Amazon way was to forget profits; in fact, Bezos spent more than $100 million a year to build the Amazon brand name.

Bezos became the most celebrated “new economy” cheerleader, particularly after being deemed

Time’s “Person of the Year,” the fourth-youngest individual ever named to the list. His story was considered the quintessential e-commerce fairytale. Ama-zon’s lasting significance may be as a cultural force. By getting on the Web early, Amazon enabled millions of people to get comfortable with the Internet as a purchasing tool.

Based on Amazon’s early success, others founded companies to capitalize on the phenomenal growth rate of the World Wide Web. College-aged entrepreneurs were some of the earliest innovators. For example, Stanford students David Filo and Jerry Yang decided that the Web required a directory to organize the plethora of new sites. In response, they founded Yahoo!,the first major portal, which attracted millions of visitors. Another young computer enthusiast, Pierre Omidyar, believed that a Web-based community could use the Net as a giant flea market. He founded eBay so that people could buy and sell collectibles and other goods. EBay is one of the few dot-com companies to become profitable and has since become the crown jewel of the Internet.

Dot-com mania reached a peak in the late 1990s, when venture capitalists started funding dot-coms based on their ability to take the company public, thus cashing in on the IPO shares. Seemingly ludicrous businesses started getting millions of dollars in seed money from a variety of investors, despite having little more than a bright idea to recommend them. The list of now defunct dot-coms reads like a comedy sketch, ranging from fashion site Boo. com, which “burned”through its $135 million investment before declaring bankruptcy, to online toy retailer eToys, online newspaper LocalBusiness. com, and the self-descriptive FurnitureAndBedding. com. Online grocer Webvan may be the biggest failure in Internet history, running through an estimated $1 billion before shutting down.

Soon, large companies started to get in on the rush. Corporations such as America Online, Cisco Systems, Sun Microsystems, and Oracle began publicizing their Net wares and purchasing startups that could add innovative technology to their portfolios. Microsoft, which had been slow to grasp the importance of the Web, debuted Internet Explorer, MSN Websites, and an online service. Fortune 500 corporations also rushed to implement e-commerce capabilities, put up Websites, and searched for methods to sell their products and services online.

The dot-com revolution coincided with and was stimulated by the year 2000 (Y2K) problem that gripped businesses worldwide. The necessity of purchasing and updating computer systems hinged on the belief that computers would not function properly when the New Year changed from 1999 to 2000. Although the switch did not cause global panic, greatly increased expenditures on corporate information technology systems added to the rationale for Internet spending.

The hysteria surrounding the Net, the get big fast mentality, and the quick grab for IPO money preordained that the bubble would burst. On paper, there was little sense in upstarts like Amazon, Yahoo, and eBay having market capitalization exceeding traditional stalwarts that had long lives on the Fortune 500.People (in many cases, really smart people) actually began to think that building a brand name or creating a flashy Website actually meant more than basic business fundamentals. Rather than adapting technology to enhance business, companies were using technology to create IPO opportunities.

The companies that flamed out at the tail end of the new economy bubble were like kindling for the recession wildfire that gripped the United States at the dawn of the new century. Over the course of one month (March 10,2000, to April 6,2000), the Nasdaq stock market lost $1 trillion in value. The tsunami destroyed the dreams of many dot-coms in its wake and startled tech investors back to reality. For employees at startups, from the chief executive officer (CEO) on down, stock options ended up “under water,”worthless scraps of paper that would never regain their luster.

In retrospect, people should have seen the downfall coming sooner. Flying in the face of multiple warning signs, too many people still sought a shot at Web wealth and glory, unable to pass on the gamble, despite the long odds. Even after Nasdaq crashed in spring 2000, investors rushed in to buy shares of depressed stocks, many of which would rebound slightly before falling for good. The media (fueled by business cable stations like CNBC, which turned Internet CEOs into celebrities, and the plump ad-soaked tech magazines) made folk heroes out of people like Amazon. com’s Bezos and Yahoo’s Yang. So many Internet legends were tales of rags-to-riches glory or college students coming up with an idea in their dorm room that by focusing on them, the media made it seem easy.

All of a sudden, seemingly intelligent people (doctors, lawyers, and professors) started writing dot-com business plans in their spare time, figuring that they might be able to strike it rich by riding the venture capital wave out of Silicon Valley and into the IPO spotlight. For those who wanted to make money with less elbow grease, countless “angel” investment firms were set up to get people with money into the tech game. With enough cash, anyone could become a venture capitalist in the late 1990s, even if that person had never set foot inside a high tech startup and didn’t know the first thing about building a thriving business.

By the end of 2001, thousands of dot-com companies went bankrupt, and tens of thousands of employees lost their jobs. The massive failure of the new economy and the subsequent trickle of new investments in technology companies, combined with corporate governance scandals and the September 11,2001, terrorist attacks, sparked a recession that plagued businesses in the early years of the twentieth century. High-tech centers, such as Silicon Valley, San Francisco, Austin, Texas, Washington, D. C., and New York City, have been especially hard hit by the failure of the dot-com revolution.

Despite the meltdown, the high-tech revolution continues, though on a much more modest scale, as traditional businesses use e-commerce and the Internet to meld online and physical storefronts. Companies are using Web-based services and technologies to become more efficient and profitable. It is nearly impossible to find an industry that has not been improved through Internet-based technology, whether it is in education and nonprofits or financial services and manufacturing.

The dot-com revolution ended in early 2000,but innovation continues to propel companies into novel areas that mix business and the Internet. Figures released by the United Nations reveal that there are 655 million registered Internet users worldwide in 2002 and that global e-commerce will top $2.3 billion, doubling the figure from the previous year.

Bob Batchelor

See also Amazon. com; E-commerce; Greenspan, Alan; Layoffs; Postindustrial Workforce; Silicon Valley; Stock Options

References and further reading

Cassidy, John. 2002. Dot. con: The Greatest Story Ever Sold. New York: HarperCollins.

Dearlove, Des, and Stephen Coomber. 2001. Architects of the Business Revolution. Milford, CT: Capstone.

Kantor, Rosabeth Moss. 2001. Evolve! Succeeding in the Digital Culture of Tomorrow. Boston: Harvard Business School Press.

Kaplan, David A. 1999. The Silicon Boys and Their Valley of Dreams. New York: Perennial.

Lewis, Michael. 1999. The New New Thing:A Silicon Valley Story. New York: Norton.

Perkins, Anthony B., and Michael C. Perkins. 1999. The Internet Bubble: Inside the Overvalued World of High-Tech Stocks—and What You Need to Know to Avoid the Coming Shakeout. New York: HarperBusiness.

Public Broadcasting System. 2003.“Life on the Internet.” Http://www. pbs. org/internet/timeline/timeline-txt. html (cited July 1,2003).

Spector, Robert.2000. Amazon. com: Get Big Fast. New York: John Wiley.

Tapscott, Don. 1996. The Digital Economy: Promise and Peril in the Age of Networked Intelligence. New York: McGraw-Hill.