Lessons from Dot-Com Boom and Bust

Abstract

The dot-com industry began in the early 1990s as a collection of startup companies using the Internet as their primary means to conduct business. These companies typically used the “.com” suffix in their company names, such as Amazon.com, and proliferated in the late 90’s with the massive investments in Internet-related stocks and enterprises. But with the failure and consolidation of many of these companies their numbers have since dwindled. The catastrophic collapse of the dot-coms that shook the U.S. economy started in May 2000. More than 210 dot-com companies failed in 2000 (Hirakubo & Friedman, 2002) and a total of 762 dot-coms closed for the period January 2000 to December 2001 (Pather, Erwin, & Remenyi, 2003). Since many of these dot-coms began to lay off their staff, the unemployment rate also increased from 3.9% to 6% by 2002 (Callahan & Garrison, 2003; Howard, 2001). The dot-com bubble burst because the boom was based on the false premise that new technology would eliminate the need for brick-and-mortar stores as this new business model would supplant the old one, thereby converting the “Old Economy,” which is based on the production of physical goods into a “New Economy,” which is based on heavy use of information and communication technology (Rauch, 2001). Although a great deal can be learned from examining the dot-com successes, it is equally important to study reasons for the failures. Examining the mistakes made by the dot-coms can provide insight into the evolution of e-commerce as a means of conducting business and furthermore help to form the basis on which new strategies can be developed for the future e-commerce environment.