What Caused the Internet Bubble?

The internet bubble is perhaps one of the most fascinating times in American history. For the first time in many ways, technology and the free market were converging on each other that would leave the world a very different place. In just a few short years, everyone was connected. You could send an email and someone on the other side of the world could see your words on their screen, it was an amazing technology that is still revolutionizing the way the world works at large.


The internet bubble, or the Dot Com Bubble as it is often known as, is the creation of hype and speculation along with too early market adopters. You could say a similar recipe was made of the real estate hype, especially in places like Florida where the market buying craze became so intense that houses grew to unrealistic levels of value that the market simply could not support.


However, the Dot Com Bubble is a bit different in this regard.


For instance, unlike the real estate crisis in Miami, the internet represented something that would actually only keep increasing in value. The problem in many ways was the early adopters had adopted too early in the market. The technology, in many ways, simply was not there yet for marketers and entrepreneurs to fully utilize to their advantage. And because of this, many angel investors, venture capitalists and entrepreneurs lost their shirts in the crazy game of juggling websites with businesses in the hopes of money printing out at the end of their convoluted and complicated mechanisms.


Because of the hype of people’s unrealistic expectations of what the internet could do back in the 1990s, there was a large volume of purely overvalued stocks flooding the stock market. These stocks were priced higher simply because they were dot com companies. No other factor was really taken into account like traditional stock analyst formulas such as P/E metrics and other cashflow metrics.


They were just abandoned, because even investors were caught in the maddening hype of the internet.


Not all of these dot com companies became failures, but many most assuredly did. These failures led to many investor firms losing their shirts, not to mention the average American investor and the actual entrepreneurs who started these ventures with such optimism and high hopes. Of course, we still know and love the companies that did come out of the 90s internet and dot com bubble.


These are companies such as Amazon (which, fun fact, originally started as an online book store. Only later did it become a ecommerce giant before again revolutionizing the book industry with the kindle), eBay and other huge giants that still exists today. Back in the 1990s these were just young, scrappy startups, and now along with companies like Google, they represent the grandfathers of the internet.

Is it possible for a second dot com bubble to ignite? Potentially. Companies like Twitter, Facebook and Instagram has made many stock analysts worried we might be in a dot com bubble 2.0, but the truth is, it is highly unlikely. Considering how much the internet is part of our society today, we have a much stronger grasp on what is realistic and unrealistic with internet ventures.