Internet Bubble History Research Paper

Besides a lot of the tech startups, many communication companies also got into trouble, as they had to cover billions of debt they took on to invest in network infrastructure—the return time of which now suddenly was a lot longer than they had anticipated.

This German hacker became a multi-millionaire by launching various internet companies in the 1990s and eventually changed his name to ‘Kim Dotcom’ as a wink to the Dot-com Economy which had made him rich.

He famously sold 80% of his shares in Data Protect, a company he founded that provided data protection services, to TÜV Rheinland in early 2000, right before the collapse of the new economy.

In 1999, he drove a tuned-up Mercedes Benz with a high-speed wireless internet connection, unique at the time, among many other electronic gadgets.

He used this car to participate in the Gumball Rally through Europe, where a host of people in expensive cars race around a number of European countries using public roads.

Many of these new companies spent a lot of money internally as well. Out of these, 117 managed to double their value within the first day of trading.

Because of stock option plans, the employees and executives of these companies became overnight millionaires after their IPOs, while it was not uncommon for these companies to spend a lot of money on luxurious business facilities, as confidence in this ‘new economy’ was extremely high. Communication companies such as mobile network operators and internet service providers also started to invest a lot in network infrastructure, as they wanted to be able to grow along with the demands of the new economy.These findings were already anticipated by the market, causing the Nasdaq to lose 10% of its value in the ten days following March 10, 2000.The day after the official findings of the Microsoft investigation were made public, April 4, 2000, the Nasdaq experienced a large intraday downfall, but subsequently bounced back up.Some investors started referring to the original dot-com stars as ‘dot-bombs,’ as they managed to destroy billions of dollars of value in a very short timespan (Investopedia, 2010; Internet, 2012).On October 9, 2002, the Nasdaq hit a low of 1114.11 points—a whopping 78% loss of value compared to its peak two-and-a-half years before (Investopedia, 2010).On March 10, 2000, the technology stock index Nasdaq peaked at over 5,000 points, the day after a fire sale of tech stocks started marking the end of the rise of the ‘new economy’ (Econport, 2007; Allen & Morris, 2008).Events Causing the Dot-com Bubble The invention of the Internet led to one of the biggest economic booms in history.At its peak, even companies which had never made any revenue were pushed onto the stock exchange and were trading at extremely high values when one looked at the bottom lines of these companies—which were extremely negative in most cases.As early as 1996, Alan Greenspan, the chairman of the Fed at the time, warned against ‘irrational exuberance,’ where rational investing was replaced by momentum investing.(This article is under construction – come back soon!) The second half of the 1990s marked the sudden rise of a new sort of economy, one in which stock markets experienced high growth rates under the influence of venture capital and IPO-funded companies in the Internet sector and related fields.

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