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| 1990s dot-com bubble | |
|---|---|
| Name | 1990s dot-com bubble |
| Start | 1995 |
| End | 2001 |
| Location | Silicon Valley, NASDAQ Stock Market, United States |
| Causes | World Wide Web, Venture capital, Initial public offering, Telecommunications Act of 1996 |
| Result | Market crash; restructuring of Internet industry, consolidation of e-commerce |
1990s dot-com bubble
The 1990s dot-com bubble was a rapid rise and abrupt collapse of valuations in the Internet-related sector centered on Silicon Valley and the NASDAQ Stock Market, characterized by speculative investment, mass initial public offering activity, and the emergence of large-scale e-commerce and online advertising firms. Key actors included Netscape Communications Corporation, Amazon.com, eBay, Yahoo!, AOL, and investors such as Sequoia Capital, Kleiner Perkins, SoftBank, and financiers participating in Initial public offering markets; the episode culminated in a market peak in 2000 and broad retrenchment by 2001.
The bubble grew from technological innovations like the World Wide Web, Mosaic, Netscape Navigator, and the commercialization of Internet Protocol services alongside regulatory shifts such as the Telecommunications Act of 1996 and privatization moves involving National Science Foundation infrastructure. Early commercialization drew entrepreneurs from institutions like Stanford University, Massachusetts Institute of Technology, University of California, Berkeley, and incubators linked to Sun Microsystems, Intel, Microsoft, and IBM. Venture funding came from firms including Sequoia Capital, Kleiner Perkins, Benchmark, Accel Partners, and investors like John Doerr, driving rapid startup formation and a culture influenced by figures such as Marc Andreessen, Jeff Bezos, Pierre Omidyar, and Jerry Yang.
Speculative capital flowed through channels including Venture capital, Initial public offering booms on the NASDAQ Stock Market, and secondary markets involving banks like Goldman Sachs, Morgan Stanley, Bear Stearns, and underwriters coordinating roadshows for companies such as Netscape Communications Corporation, Amazon.com, Pets.com, Webvan, Boo.com, and Excite. Media coverage by outlets like The Wall Street Journal, The New York Times, Forbes, and Fortune amplified narratives promoted by analysts at Merrill Lynch, Salomon Brothers, and Credit Suisse, while indexes such as the Nasdaq Composite and funds managed by Fidelity Investments and Vanguard Group reflected massive inflows.
Many startups adopted advertising-led, user-acquisition, or market-place models exemplified by Yahoo!, Google, AOL, eBay, and Craigslist; technologies enabling these included Hypertext Transfer Protocol, HTML, Java, Flash, SSL, and broadband deployments involving AOL Time Warner-era partnerships and infrastructure by AT&T, Verizon Communications, and Bell Atlantic. Logistics-heavy ventures like Webvan and Boo.com sought to combine supply chain innovations with warehousing and distribution investments inspired by firms such as FedEx and UPS; business strategies often emphasized growth metrics promoted by advisors from McKinsey & Company, Bain & Company, and Boston Consulting Group.
By 1999–2000 market valuations surged with the Nasdaq Composite reaching record highs driven by IPOs including Netscape Communications Corporation and secondary offerings by companies such as eBay and Amazon.com; analyst coverage from Robert Shiller and market commentators like Alan Greenspan debated whether fundamentals supported prices. Public and private financing rounds led by SoftBank, Fidelity Investments, and Goldman Sachs inflated valuations for firms such as Pets.com, TheGlobe.com, Ariba, and CMGI despite unreliable revenue models; institutional investors, retail brokers including Charles Schwab Corporation and online brokerage platforms facilitated a feedback loop of demand and rising share prices.
The unraveling began with sequential valuation re-assessments, margin calls at firms like Long-Term Capital Management (earlier systemic stress), and reduced capital availability after IPO windows closed, precipitating bankruptcies including Pets.com, Webvan, Boo.com, and consolidation among surviving firms such as Amazon.com and eBay. The crash led to declines in the Nasdaq Composite and losses for funds managed by Fidelity Investments and Vanguard Group, layoffs across Silicon Valley employers including Sun Microsystems and Hewlett-Packard, bankruptcies of investment banks and underwriters, and wider effects felt in international markets like Tokyo Stock Exchange and London Stock Exchange. Macroeconomic reactions involved actions by the Federal Reserve System, scrutiny from lawmakers in United States House of Representatives and United States Senate, and investigations involving agencies such as the Securities and Exchange Commission.
Policy and regulatory responses included enforcement and rule changes at the Securities and Exchange Commission targeting disclosure and accounting standards abuses, congressional hearings involving figures such as Alan Greenspan and CEOs of major firms, and revisions to practices by underwriters including Goldman Sachs and Morgan Stanley. Reforms touched on Sarbanes–Oxley Act-precursor debates, listing standards on exchanges like NASDAQ Stock Market and New York Stock Exchange, and renewed focus by auditors from PricewaterhouseCoopers, Ernst & Young, Deloitte, and KPMG on financial reporting and internal controls.
Long-term effects included consolidation and maturation of e-commerce leaders Amazon.com and eBay, the technological foundation for later firms such as Google, Facebook, Twitter, and LinkedIn, and the development of more disciplined venture capital practices among firms like Sequoia Capital and Kleiner Perkins. Infrastructure investments propelled growth in cloud computing by companies such as Amazon Web Services and shifts in media and advertising toward platforms including Google AdSense and DoubleClick. The episode influenced financial regulation, corporate governance reforms affecting Sarbanes–Oxley Act enactment, and academic work by economists like Joseph Stiglitz, Robert Shiller, and Paul Krugman on asset bubbles, risk, and market behavior, while reshaping startup ecosystems at institutions such as Stanford University and incubators like Y Combinator.
Category:Financial bubbles