What was the “dot com bubble”, why is it often compared to recent digital scans and what did it entail?

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What was the “dot com bubble”, why is it often compared to recent digital scans and what did it entail?

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The Internet became readily available and very popular in the mid-to-late 1990s. It’s when people started subscribing to AOL and surfing around and tech businesses really started to boom.

And, a “bubble” in economic terms is when a part of the market becomes *too* big for what it can really support. It grows and grows and grows… then *pop*. Imagine if a hundred different shops just like Wal-Mart tried to set up storefronts in one town of like 50,000 people. Well, maybe for a while each of those shops would be making money as everyone tries to get the best deals and buy what they need. But eventually everyone’s going to realize that there’s really only like five shops that have good prices *and* have everything they need, so they’re gonna shop there and all the others are gonna go out of business.

That’s what the “dot com bubble” was, except it was specifically high-tech businesses and new digital shops and online services. It was like the Wild West, everyone was trying out new things, lookin’ for gold in every nook and cranny. Eventually things quieted down and all those businesses had to shut down because the market just couldn’t support them all.

The internet really started to take off in the mid-1990s. It literally was like the gold rush or industrial revolution. Lots of new companies sprung up in the process, traditional companies were rapidly creating websites to get online. Netscape was the first major browser available and when their stock went public it skyrocketed. Venture capitalists were throwing money at any company with .com in the name to strike it rich. Some of the internet names you know now, Google, Amazon, Ebay, etc got their start in that period. Amazon originally only sold books. Many tech companies gave out huge stock option grants to employees as compensation, if the company you worked for had an IPO you could bean overnight paper millionaire, or billionaire if you were one of the founders.

Companies opened big offices in Silicon valley. Once that initial funding ran out though, these companies had no real business. plan or income and it all started crashing down. So lots of companies started laying off people and the market tanked. Those paper millionaires suddenly didn’t have any money as the options were worthless. There is no longer pets.com, webvan.com (an early Instacart), etc.

It’s sometimes called the tech bubble or internet bubble. Better to look it up on Wikipedia as it was pretty complex set of factors surrounding the worldwide web becoming widely available to the general public. But it resembled other historic bubbles in key respects such as rampant speculation, risky investments, relaxed lending, fear of missing out etc.

Economist Robert shiller wrote an excellent account called irrational exuberance, after the phrase made famous by Allan Greenspan. Great read.