[Dot Com Start Ups] Internet Company Failures

Sunday, August 19, 2012

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Today I stumbled upon the "Dot-com Bubble".  To be honest, this was the first time I heard of it. This could be your first time too unless you were following the internet more than 10 years ago. The dot-com bubble refers to the sharp rise and steeper fall of dot-com business model. The dot-com business model centers around creating a catchy website with a good business idea with internet as the platform. These companies had a solid good idea for business. These companies were primarily funded by venture capital. They had both idea and money. So far, so good.

Some of the prominent dot-com companies were
  1. Boo.com(1998-2000) - Fashion Retailer.
  2. Go.com - A web portal with content from ABCNews, ESPN and FamilyFun.
  3. Pets.com(1998-2000) - Online store for pet supplies.
  4. Pseudo.com - Audio and Video web casting.
  5. GovWorks.com - Software to help government clients track purchases and contracts.
People's faith in the internet boom was evident from the fact that stock prices of companies began to increase if it had a "e-" prefix and/or ".com" at the end in the companies name! So there was no shortage of initial funding for new dot-com start up companies.
Internet Start up Failures
Dot Com Bubble Burst

This business model collapsed dramatically by 2001. The primary reason for the collapse was most of the companies did not have a good business model, and were greedily spending money to gain more "market" without actually making a profit. Since the company stock value was increasing, it didn't matter at the moment.

The goal was to"Get Big Fast". They forgot one key factor, Return on Investment. The tipping point was when US Federal Reserve increased interest rate 6 times and the economy began to lose speed. The investments began to dry up, and the start up companies collapsed. Boo.com had spent $135 million of its venture capital and according to CNET, the greatest dot com bust in History.

The reasons for the failure is a good starting point lesson before starting any business. Though thousands of companies failed during the dot com bust, some survived to become online giants like eBay and Amazon.


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Karthik

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