Cryptocurrencies - the new dot-com bubble? Analysts say it is. Dot-com crisis - description, history and interesting facts Dot-com all-time chart

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The emergence and development of the Internet has led to unreasonably high expectations in the business sector. Many businessmen saw a lot of opportunities that the Internet brings with it and began to invest incredible money. The stock prices of IT companies skyrocketed, the leaders of such organizations themselves bathed in money and spent huge amounts of money to attract more and more new investors. Nobody thought about development as such.

The world economy does not tolerate financial bubbles. The problem is that it is extremely difficult to distinguish a bubble from an economic growth. Outwardly, everything looks great, money is pouring in, everyone is happy, the most optimistic forecasts are being expressed. And if it's a bubble, it will eventually burst. And it usually crashes right away. In this article, we will talk about one of the most famous bubbles - the dot-com crisis.

What is dotcom

Dotcom is a term that was and is still used today in relation to companies whose business model is entirely based on working on the Internet. It comes from the English dot-com ("dot com") - the domain top level.com, on which sites are usually registered commercial organizations. After the collapse of the dot-coms, the term took on a negative connotation that now denotes an ill-conceived, inefficient, and immature business model.

The dot-com climax and collapse occurred on March 10, 2000. At the moment, the Internet business is experiencing its second rise, and no one knows if this is a bubble or a new era.

How it was

In the late 1990s, Internet stocks skyrocketed. The very word “Internet” magically drove up stock prices. Analysts advised investors to invest more more money to high tech companies.

On March 10, 2000, the NASDAQ Composite index of high-tech companies crashed. In just a year, the index fell from 5132 points to 1100, that is, almost five times. The vast majority of dot-com companies collapsed along with the US stock exchange. Some dot-com executives have been convicted of embezzlement of shareholder money and fraud.

Dot-com money was invested mainly in advertising and marketing campaigns, few people developed the business model itself. As a result of the collapse of the dot-com bubble, most companies were liquidated or sold.

Now (Facebook, Vkontake, Twitter) are on the rise, and analysts are looking for a new danger there. The audience of such sites is simply huge, which attracts investors from all over the world. It is assumed that if this is indeed a bubble and it bursts, then in terms of its destructive power, it can be ten times more destructive.

Reasons for the collapse of dot-coms

• Inability to objectively assess the price of shares. When placing shares of Internet companies on the stock exchange, analysts had a logical question: how to evaluate them? These companies didn't own anything at the time - they had a couple of computers, a well-known domain name, and a few employees. How much to value a share of a company, the value of which is and exists, is only in the heads of managers who may or may not be able to bring their ideas to life. A simple decision was made: to rate dot-coms by the number of audience and the time the average user spends on this site.
• Lack of a sane business model. Dot-coms were usually run by programmers and IT geniuses who did not understand anything either in business, or in art, or in monetization.
• Excessive spending on advertising. The owners of the companies understood everything correctly - not a single investor understands what is in the head of the founders of such companies, so businessmen had to just take their word for it. And the more money was invested in advertising companies, the more funds were attracted from investors. Simply put, the advertising campaign was arranged not for potential consumers goods and services, but exclusively to attract more and more new funds.
• Substitution of concepts. Doing business with the help of the Internet is only a tool for the implementation of a business process, but not an independent business process.
• Misunderstanding the Internet. The creation of the Internet was predicted by many science fiction writers, but no one understood what to expect from it. The transfer of business to the Internet carried huge risks, if only because it had its own rules, which at that time no one knew. People tried to set their own rules, but they did not work, the Internet existed according to its own laws.
• Dishonesty and artificial price gouging. Many unscrupulous scammers have recognized opportunities to defraud customers and investors. At any new sphere the risk of being deceived increases several times.
• Underdevelopment of the Internet. The Internet itself at that time was quite raw and incomprehensible to many participants. Effective monetization of traffic in the 90s has not yet been learned.

Effects

A wave of layoffs followed. Not only were many specialists thrown out into the street, but even at that time international outsourcing began to develop in the United States.

Trust in the IT sector has been lost. Uncontrolled speculation on expectations has greatly increased the decline in confidence in them.

Thousands of companies around the world (mainly in the USA) were declared bankrupt and liquidated. Litigation began.

However, three companies have survived in this state and are currently thriving - Amazon, eBay and Google.

Will startups and social media cause disaster?

Since 2004, Internet projects have begun to gain momentum again. At the moment, the market has made a strong breakthrough and is a fairly serious force. However, many investors have wised up and are investing in the later stages of startup development. They want to make sure that their creators have a business strategy and are already confidently implementing it. Although many startups fail, investors take these risks because it only takes one company to break through to cover all costs and make good money from it.

Social networks in general have become powerful organizations and have been flourishing for several years now. recent years. They came up with an ingenious solution - the social network should be free, and you can make money in almost invisible ways. An ordinary person can make money on a social network and provide for himself quite well. So at least monetization works. The only question is how it will change over time and where it will lead.

A lot has changed in 15 years. If a bubble exists, it is a completely different bubble.

(mainly American), as well as the emergence of a large number of new Internet companies and the reorientation of old companies to the Internet business at the end of the 20th century. Shares of companies that offered to use the Internet to generate income skyrocketed in price. Such high prices were justified by numerous commentators and economists who claimed that a “new economy” had arrived, but in reality these new business models turned out to be inefficient, and funds spent mainly on advertising and large loans led to a wave of bankruptcies, a strong drop in the index NASDAQ, as well as a collapse in the prices of server computers.

While the latter part of this period was one of boom and bust, the Internet boom is usually attributed to the steady commercial growth of Internet companies associated with the onset of the World Wide Web era, which began with the first release of the Mosaic web browser in 1993 and continued through the 90s. .

Deep Causes

If we discard the superficial and obvious reasons mentioned above (comments about the "new economy", investing investors in advertising and marketing instead of developing a business), we can identify the true cause of the collapse. It consists in the fact that, thanks to the efforts of both businessmen who are not entirely clean-handed, and enthusiastic apologists for the new economy, a substitution of concepts has occurred in the minds of investors and the creators of dot-coms: doing business via the Internet is only a tool for implementing a business process, but not an independent business process. able to generate income from invested capital. However, using this tool, you can multiply the efficiency of a "traditional" business or implement a new business idea (impossible or inefficient without the Internet).

An illustration of the first case is the activity of various online stores (for example, Amazon.com). Trade in goods through catalogs (or through teleshopping) with postal delivery was a fairly large and profitable business segment before the advent of the Internet. The use of direct sales via the Internet with the automation of ordering and payment processes, updating catalogs, and logistics made it possible to increase both the rate of capital turnover and audience coverage.

An illustration of the second case may be the eBay online auction. Without the use of the Internet, it is impossible and inappropriate for individuals, as well as small and medium-sized businesses, to organize auctions to sell their things or products (with the exception of extremely expensive or exclusive goods) due to expenses that are incomparable with the proceeds, and in some cases - due to the inability to attract to the auction of buyers due to territorial remoteness.

An example that applies to both the first and second cases is the use of the Internet for stock trading. Prior to the widespread use of the Internet, the decision to conduct exchange transactions was made “on the spot” by brokers or analysts of the respective companies, based on either pre-given instructions from the client (specific in terms of prices and names valuable papers or general regarding the buying / selling strategy), or direct telephone consultations with the client. The natural limitation of the available time for the exchange of information and the inability to simultaneously contact all clients led to a shift in the "center of gravity" in decision-making towards professional market participants.

The ability to remotely view securities quotes, as well as remotely give instructions to exchange agents to make transactions, has led to the emergence of a new approach to traditional business: in this case, the client himself is engaged in market analysis, strategy selection and actually carries out transactions himself, leaving professional participants only questions documentation transactions and financial and financial statements. This approach, on the one hand, increased the efficiency of traditional exchange trading (from the point of view of clients), on the other hand, it is impossible without the existence of the Internet. At the same time, the old principle of exchange trading (when the decision is made by a professional market participant) has been and remains effective and attractive, for example, for use by investment or pension funds, which do not have an appropriate division in their composition and transfer asset management to a third party.

How it was

The dot-com bubble burst on March 10, 2000, when the NASDAQ high-tech index crashed. Before that, the NASDAQ hit its high of 5048.62 (with a daily peak of 5132.52), thus doubling its performance just a year ago. Most dot-com companies collapsed along with the American stock exchange. As a result of these events, hundreds of Internet companies went bankrupt, were liquidated or sold. Several company executives have been convicted of fraud and embezzlement of shareholder money. Most of the business models of the new e-commerce companies were inefficient, and their funds were spent mainly on marketing campaigns and advertising on television and in the press.

After these events, for several years the word "dotcom" began to be used as a designation for some immature, ill-conceived, or inefficient business concept.

The term "dotcom" for such companies comes from the commercial top-level domain - .com (literally - English. dot com"dot com").

Effects

The collapse of the dot-coms was the loss of confidence in the securities of high-tech firms associated with the provision of services via the Internet. On the one hand, this was caused by a significant reassessment of the so-called. post-industrial technologies, which in practice did not live up to the expectations attributed to them, on the other hand, there were uncontrolled speculations on these expectations, which greatly increased the negative effect of the fall in confidence. In fact, a whole sector of services ceased to exist, the demand and value of which turned out to be exaggerated. This was accompanied by the ruin of thousands of firms and companies of various levels, mostly newly formed ones.

Some companies in the communications sector were also unable to bear the financial burden and were forced to file for bankruptcy. One of the biggest players, WorldCom, has been caught in an annual illegal banking operation to increase profits. WorldCom's market value plummeted when this information became public, triggering the third-biggest bankruptcy in US history. Other examples include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications and Covad Communications. Companies such as Nortel, Cisco, and Corning were at a disadvantage as they relied on infrastructure that was never built, causing a significant drop in Corning's share capital.

Many dot-coms ran out of funds and were bought or liquidated; domain names were purchased at residual prices by competitors or investors. Several companies and their boards have been accused of fraud for misusing depositors' funds, and the US Securities and Exchange Commission has fined major investment companies (such as Citigroup and Merrill Lynch) millions of dollars for misleading investors. Many related industries, such as advertising and logistics, have reduced their activities due to falling demand for services. Many big dot-com companies, like Amazon.com or eBay, have survived the turmoil and seem confident in their long-term survival, while others, like Google, have become industry-leading corporations.

The stock market crash of 2000-2002 caused a $5 trillion drop in the market value of companies between March 2000 and October 2002. 9/11 that destroyed the twin towers of the World Trade Center and claimed the lives of more than 700 Cantor-Fitzgerald employees, ultimately slowed the decline in the pace of trading on the stock exchange by introducing mechanisms for direct control of the processes of securities speculation associated with "anti-terrorism" activities.

There is an opinion [float expressions] that only 50% of dot-com companies survived by 2004, while it is not indicated in what form they "survived" and due to what type of activity. Statements that the loss of assets on the stock exchange is not directly related to the closure of firms are false, because they turn everything upside down. These companies prospered for some time only through speculative transactions in securities, without providing even a small share of the services and not receiving the corresponding profit that investors expected from them. The economic incompetence of the investors themselves was caused by the intensive processing of public opinion, which was convinced of the emergence of a new “post-industrial era”, which allegedly canceled any requirements for the availability of real productive resources for economic activity. Thus, the information superstructure was presented as the entire economic mechanism.

Many lay-off tech experts, such as computer programmers, have found themselves in a jaded job market. In the US, international outsourcing and the recent increase in the number of skilled foreign workers (participating in the US H-1B visa program) have exacerbated the situation. University computer science programs have experienced a decline in new students. Anecdotes about programmers going back to study to be an accountant or a lawyer were popular.

One of the reasons for the collapse of dot-coms is the incorrect assessment of the assets and prospects of Internet companies, as a result of which investors were provided with inflated estimates of the value of companies. Such analytical activities of investment houses attracted the attention of financial regulators. Laws on the division of commissions (Commission sharing agreement, client comission arrangements) were adopted, according to which a guaranteed part of the brokerage fees received by investment houses goes to pay analysts. As a result, investors have the opportunity to receive independent analytics, which provides a comprehensive view of investment attractiveness Internet companies and makes it possible to avoid inflating new economic bubbles in the future.

see also

Notes

Wikimedia Foundation. 2010 .

Dot-com bubble- An economic bubble that existed between approximately 1995 and 2001.

Reference:
Economic bubble - trading in large volumes of goods or more often securities at prices that differ significantly from the fair price. As a rule, the situation is characterized by a rush demand for a certain product, as a result of which the price for it rises significantly, which, in turn, causes a further increase in demand.

The rapid development of dot-coms was associated with increased public attention to the new opportunities provided by the worldwide network. The heyday of dot-coms was also characterized by the low cost of raising debt and investment capital for any projects related to the Internet. Last but not least, this is what gave rise to huge amount firms that, using the Internet as a magic spell, have easily received significant investments not only from venture capital funds, but also from more traditional financial institutions.

Nasdaq stock exchange index chart

The dot-com boom ended in March 2000 with a massive drop in the NASDAQ index and the bankruptcy of hundreds of companies generated by the "information economy" of Silicon Valley. The collapse of dot-com caused a massive outflow financial resources from the Internet sector of the economy and loss of confidence in this type of business.

Causes

If we discard the superficial and obvious reasons mentioned above (comments about the "new economy", investing investors in advertising and marketing instead of developing a business), we can identify the true cause of the collapse.

It consists in the fact that, thanks to the efforts of both businessmen who are not entirely clean-handed, and enthusiastic apologists for the new economy, a substitution of concepts has occurred in the minds of investors and the creators of dot-coms: doing business via the Internet is only a tool for implementing a business process, but not an independent business process. able to generate income from invested capital. However, using this tool, you can multiply the efficiency of a "traditional" business or implement a new business idea (impossible or inefficient without the Internet).

An illustration of the first case is the activity of various online stores (for example, Amazon.com). Trade in goods through catalogs (or through teleshopping) with postal delivery was a fairly large and profitable business segment even before the advent of the Internet. The use of direct sales via the Internet with the automation of ordering and payment processes, updating catalogs, and logistics made it possible to increase both the rate of capital turnover and audience coverage.

An illustration of the second case may be the eBay online auction. Without the use of the Internet, it is impossible and inappropriate for individuals, as well as small and medium-sized businesses, to organize auctions to sell their things or products (with the exception of extremely expensive or exclusive goods) due to expenses that are incomparable with the proceeds, and in some cases due to the inability to attract to the auction of buyers due to territorial remoteness.

Effects

The collapse of the dot-coms was the loss of confidence in the securities of high-tech firms associated with the provision of services via the Internet.

On the one hand, this was caused by a significant reassessment of the so-called. post-industrial technologies, which in practice did not live up to the expectations attributed to them, on the other hand, there were uncontrolled speculations on these expectations, which greatly increased the negative effect of the fall in confidence. In fact, a whole sector of services ceased to exist, the demand and value of which turned out to be exaggerated. This was accompanied by the ruin of thousands of firms and companies of various levels, mostly newly formed ones.

Some companies in the communications sector were also unable to bear the financial burden and were forced to file for bankruptcy.

One of the biggest players, WorldCom, has been caught in an annual illegal banking operation to increase profits. WorldCom's market value plummeted when this information became public, triggering the third-biggest bankruptcy in US history. Other examples include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications and Covad Communications. Companies such as Nortel, Cisco and Corning were at a disadvantage as they relied on infrastructure that was never built, causing a significant drop in Corning's share capital.

Many dot-coms ran out of funds and were bought or liquidated; domain names were purchased at residual prices by competitors or investors. Several companies and their boards have been accused of fraud for misusing depositors' funds, and the US Securities and Exchange Commission has fined major investment companies (such as Citigroup and Merrill Lynch) millions of dollars for misleading investors.

Many related industries, such as advertising and logistics, have reduced their activities due to falling demand for services. Many big dot-com companies like Amazon.com or eBay have survived the turmoil and seem confident of long-term survival, while others like Google have emerged as the leading corporations in the industry.

The stock market crash of 2000-2002 caused a $5 trillion drop in the market value of companies between March 2000 and October 2002. The 9/11 attack that destroyed the Twin Towers of the World shopping center and claimed the lives of more than 700 Cantor-Fitzgerald employees, eventually slowed the decline in the pace of trading on the stock exchange, thanks to the introduction of mechanisms for direct control of the processes of speculation in securities associated with "anti-terrorism" activities.

Claims that the loss of assets on the stock exchange is not directly related to the closure of firms - false, because they turn everything upside down. These companies prospered for some time only through speculative transactions in securities, without providing even a small share of the services and not receiving the corresponding profit that investors expected from them.

The incompetence in economic matters of the investors themselves was caused by the intensive processing of public opinion, which was convinced of the emergence of a new "post"-industrial era, which supposedly abolished any requirement for the availability of real productive resources for economic activity. Thus, the information superstructure was presented as the entire economic mechanism.

Many lay-off tech experts, such as computer programmers, have found themselves in a jaded job market. In the US, international outsourcing and the recent increase in the number of skilled foreign workers (participating in the US H-1B visa program) have exacerbated the situation. University computer science programs have experienced a decline in new students. Anecdotes about programmers going back to study to be an accountant or a lawyer were popular.

One of the reasons for the collapse of the dot-coms was the misjudgment of the assets and prospects of Internet companies, as a result of which investors were provided with inflated estimates of the value of companies. Such analytical activities of investment houses attracted the attention of financial regulators.

Laws on the division of commissions (Commission sharing agreement, client comission arrangements) were adopted, according to which a guaranteed part of the brokerage fees received by investment houses goes to pay analysts. As a result, investors have the opportunity to receive independent analytics, which provides a comprehensive view of the investment attractiveness of Internet companies and makes it possible to avoid inflating new economic bubbles in the future.

Alternative theory

There is an opinion that the true reason for the market's fall in 2001 is that as early as 1998, investment analysts came to the conclusion that the pace of expansion of IT technology markets will decrease sharply in the near future. Moreover, each investment company came to these conclusions independently and carefully concealed from competitors the fact that the degree of possible involvement of end customers in the purchase of goods and services using Internet technologies has serious limitations.

Thus, the "Dot-com Bubble" is a conscious speculative game, and not a substitution of concepts or someone's delusions. It became possible against the backdrop of a market overheated by unrealistic expectations of a technological miracle. And while most specialists were engaged in an expanding discussion of the finiteness of the observed progress, psychological examinations began to show the accumulating consumer fatigue from the flickering of technological novelties.

Ten years ago, on March 10, 2000, the collapse of the IT sector began, which has gone down in history as the "dot-com crisis". On this day, the NASDAQ US market index, which specializes in high-tech stocks, reached its all-time high of 5132.52 points, doubling a year ago, with a rise of 1000 points in just two months. After that, a sharp decline began. In just five days, the index returned to the value of 4580 points and the decline continued. A year later, the values ​​of this index fluctuated around the 1500 mark, and by the end of 2002, they generally approached the bottom - 1100. Now this mark fluctuates at the level of about 2500 points.

The "IT bubble" began to form in the late 90s as a result of the rise in the shares of Internet companies. The desire to grab a piece of the investment pie pushed businessmen to form more and more new Internet companies and reorient old companies to Internet business. The word "internet" magically inflated stock prices, the capitalization of network giants like ! or AOL, beat all the records - for example, market value the subsequently bankrupt Nortel Networks exceeded $180 billion at that time. Analysts were confident that the NASDAQ would “break through” the bar of 6,000 points, and actively advised investing in growing high-tech companies.

“If you are an astute trader, then you should have high-tech stocks in your portfolio that symbolize the new economy,” argued the beginning of an article released by analysts at Prudential Securities investment fund a couple of days before the crash began.

In fact, these new business models proved to be ineffective, with large loans spent mainly on advertising and attracting new investors. This led to a landslide drop in the NASDAQ index, as well as prices for server computers. Most IT companies went bankrupt, were liquidated or sold. As of the end of November 2001, share prices Sun Microsystems, BEA Systems are down more than 62%, 70%, and 78%, respectively, from their pre-crash levels. Several company executives have been convicted of fraud and embezzlement of shareholder money.

However, Tim Leister of the University of Virginia, and Brent Goldfarb of the University of Maryland, in their study of the dot-com boom, counted the number of companies that successfully survived the crisis, and concluded that there were fewer casualties than is commonly believed. “People usually imagine that the 2001 crisis killed 90% of dot-coms, but in fact, out of a random sample of companies that received venture capital investments in 1999, about half remained in business five years later,” the scientists say.

Ten years later, analysts believe that

The “dot-com crisis” has become “one of the rehearsals” for the global financial crisis.

“The nature of all crises is basically the same - the overvaluation of a certain asset,” says Denis, head of the analytical department at Grandis Capital Investment Company. But if the dot-com crisis brought down only the high-tech sector and almost did not touch the fundamental foundations of the world economy, then the mortgage crisis affected one of the pillars of the modern economy - financial system which made it worldwide.

It is impossible to rule out the recurrence of such “bubbles” in the future, concludes a senior analyst at IF Olma.

“Conclusions were not drawn, as history shows, and there are no guarantees that they will not be repeated,”

Barabanov agrees. And no restrictions will help here, the analyst believes.

It is still difficult to guess where the next bubble will burst. Perhaps it will again be dot-coms. Analysts are looking for danger in social networks such as Facebook, MySpace, Twitter, Vkontakte. Due to their huge audience, they are very attractive to investors, for example, according to the analytical website comScore, in October 2009, the audience of Facebook exceeded 430 million users worldwide, MySpace - 120 million, and Twitter - more than 50 million. dot-coms, the owners do not yet understand how to make money on social networks. So far, large Internet projects are operating at a loss. So, according to comScore, the cost of maintaining the work of YouTube in 2009 amounted to $ 740 million, and this is twice as much as the portal managed to earn during this period. Hope is pinned on rising advertising revenues. So, if in 2007, according to the analytical company eMarketer, the advertising market social networks reached $1.225 billion, according to forecasts, by 2011 the volume of this market should grow to $3.8 billion.

AT modern conditions the new "dot-com crisis" will be more dangerous than the previous one. "Deep specialization modern business leads to dependence on multiple suppliers and consumers. Problems with one of the companies in this chain can destroy the entire business,” says Aleksey Steputenkov, development director of the Hosting Community group of companies.

(mainly American), as well as the emergence of a large number of new Internet companies and the reorientation of old companies to the Internet business at the end of the 20th century. Shares of companies offering to use the Internet to generate income skyrocketed in price. Such high prices were justified by numerous commentators and economists who claimed that a “new economy” had arrived, but in reality these new business models turned out to be inefficient, and large loans spent mainly on advertising led to a wave of bankruptcies, a strong drop in the index

How it was

The NASDAQ Composite high-tech index peaked in March 2000, after which there was a precipitous fall

Links

• Article "The NASDAQ Bubble in the Kommersant newspaper"

Wikimedia Foundation. 2010 .

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