Friday, October 19, 2012

IT BUBBLE: THE DOOM OF 2000

The IT bubble burst long back, and with it, did many fortunes...

The idea of these companies was to work towards monopolising the sector that they functioned in, with the help of network effects and rope-in as many subscribers as possible, rather than think about ways to earn revenues from the same. What added to their miseries were the increased spending in the technology that would enable Y2K switchover. The companies soon realised that all these investments were of no use for them. Whatever be the case, this bubble is recalled as the worst that the Silicon Valley has seen till date. It wiped off almost 50% of IT-based companies across the world... rough patch indeed! Some of the prominent names that were shaven off were: Webvan, Pets.com, Kozmo.com and Floorz.com. The online grocer Webvan was based on a good idea, but its main problem was that in the midst of all the euphoria, it felt that it could mushroom quickly but it died-out in just 18 months. Webvan had raised $375 million through an IPO, expanded to 8 US cities, and had ordered $1 billion to build high-tech warehouses. During its short life time, could boast of an Mcap of $1.2 billion, but then reality struck and all was gone. Another name that faced the music was America Online (AOL) that acquired Time Warner on January 11, 2000. This merger is said to be the beginning of the doom for this company (refer to story titled ‘Atleast, we spared their pants!’; page 48).

Though this crash is now a thing of the past, it has taught a valuable lesson to many investors – never forget to question the fundamentals of the business you are investing in... And if you still don’t believe us, ask those who were stripped to the bone during the crash that was!


Source : IIPM Editorial, 2012.

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