The Dot-Com Bubble; Impacts and who were aware beforehand
The glorious superhighway of information was a dream that was yet to be fulfilled twenty-two years ago. This is where the Dot-Com Bubble starts.
Thousands of investors saw the immense potential and started funding tech companies at a rate that was never seen before. Tech entrepreneurs were equally excited about this new technology and started growing their businesses. Many had mind-blowing concepts and technology, which were irresistible to the investors on wall street. But for the internet to be successful, it had to be accessible right?
Yes, and it sure was to many people in the United States. Wi-Fi speeds hovered at 56 kbps in 1933 and grew rapidly. Even foreign countries like India were introduced to the latest technology of the time. Meanwhile, Marc Andreessen, who was the developer of Mosaic, later went on to find Netscape. It was the most profitable tech company at the time and its stock price skyrocketed from $28 to $75, before finally closing at $58.
Yes, you read that right! And for your information, the company was founded just 18 months before the IPO.
Other companies also followed suit, with billions in valuation! Literally, anything with a dot-com in its name got the investors’ attention. But this is supposed to be a good thing because more investments mean more capital, and more capital would certainly help generate more revenue, right? Wong! This is because most companies spent fortunes on marketing, and focused little to nothing on generating revenue. Only a handful of tech companies, like Apple and Microsoft, made massive growth, while many others were just out of traction. This hype and excitement were fueled more by parties and band ceremonies.
Now you must be thinking that at least a lot of technological advancements could’ve been made at the time. To your dismay, this isn’t 100% true. In fact, at the beginning of the millennium, computers didn’t even have enough storage to change the year from 1999 to 2000. The storage was just too low! So instead, the computers just changed the last two digits, depicting that the year was 1900. This sent shock waves throughout the world, as many countries don’t follow the same day-month format. But this wasn’t all! Banks, power plants, and transportation also took a heavy toll. National Geographic better describes it by saying:
“Banks, which calculate interest rates on a daily basis, faced real problems. Interest rates are the amount of money a lender, such as a bank, charges a customer, such as an individual or business, for a loan. Instead of the rate of interest for one day, the computer would calculate a rate of interest for almost 100 years!
Centers of technology, such as power plants, were also threatened by the Y2K bug. Power plants depend on routine computer maintenance for safety checks, such as water pressure or radiation levels. Not having the correct date would throw off these calculations and possibly put nearby residents at risk.”
Later when the bubble burst, investors were in shock and all of the hype, along with most tech companies came crashing down. And let me tell you, at that time, tech companies lost 1.75 trillion dollars of their value! While companies like Apple, Amazon, Google, Microsoft and Yahoo emerged victoriously, the money put into their rivals was long lost. Many were homeless, lost their savings and thousands were left unemployed. This is the main reason that Venture Capital and private equity firms have dramatically changed ever since. Many investors shaped their strategies and the new generation learned a huge lesson.
Were people aware of the bubble?
Other than looking at the numbers and wisely investing after calculating returns, there were many other solutions to this problem. You may be knowing about Alan Greenspan, the chairman of the federal reserve at the time. He is particularly remembered for creating a massive real estate bubble, but that’s another issue. The point here is that Alan Greenspan described the dot-com bubble as “irrational exuberance”. Although he didn’t elaborate much, his words turned out to be true.
The only problem was that people turned a blind eye, and consumed themselves in all the hype. The same thing is happening today with NFTs, which may burst soon. Now going back on track: As I said before, there were a few survivors, and most of them were aware of what was happening. In fact, Microsoft was one of the few companies that performed really well at the start of the millennium and they grew by 50%.
They survived the crises all because they knew the situation and took advantage of it. After the crash, there were hundreds unemployed, due to which wages were low. Real estate was also pretty cheap, and these companies took this opportunity and ran for it. Even investors who could recognize the true potential of these companies profited big time, as the share prices eventually climbed up.
To know more about Alan Greenspan, I recommend the book ‘Greenspan’s BUBBLES: The Age of Ignorance at the Federal Reserve’ written by Willian A. Fleckenstein.
If more students are trapped in debt, the next generation won’t be able to afford necessities, let alone services and lifestyle products. This would also contribute to the slowing down of the economy, as employers would find it difficult to find capable employees. Disguised employment in the economy would also increase and debtors would take to the streets. Violence would also be a matter of concern in the long run.