In the late 1990s and early 2000s, the world went crazy over websites based businesses with absolutely no revenue model. Hundreds of millions of dollars were sunk into the “.com” bubble. Now, those models have evolved into billion dollar industries such as data mining, shopping online and advertising. As the new gTLDs prepare to launch, I can’t help but ask, “What is the bubble in the .anything paradigm shift?” And, what happens to all those companies who paid hundreds of thousands of dollars or even millions for their .com – what’s it worth now?
After years of venture capitalists pouring billions into dot coms and often paying millions just to acquire the .com name, only to have the lion’s share of those companies completely flame out, is it any wonder that ICANN determined a high barrier of entry was required in the next generation of the Internet ($185,000 to apply for a gTLD)? No one may be crying over the lost VC money, the trickle down impact on the stock market has been felt by all. A brief history lesson provides some guidance. For example, according to John Cassidy in his book dot. con, the biggest venture capital deal of 1999 was $275 million for Webvan, an online grocery store. Two months after starting, it filed for an IPO, which was a new record in the craze of .coms filing for IPOs. It had lost $35 million on sales of just $395,000. Following this IPO, others quickly followed: egreetings.com, mothernature.com, smarterkids.com, ecollege.com, toys.com, pets.com and kozmo.com. The commonality among all of these companies – they had no revenue – only venture capital backing. The venture capitalists were actually creating wealth out of nothing by speculating and launching IPO campaigns. Journalists soon began to realize that the jig may be up. Pegasus Research International predicted in early 2000, that within twelve months at least fifty Internet companies would have no money left. And on Friday, April 14, 2000, ironically 88 years to the day after the Titanic sank, CNBC and CNNfn reported that prices were rising faster than any point in the last five years. Waves of selling began to hit the technology driven NASDAQ. Afternoon margin calls added pressure and the Dow was down 617.78 points and the NASDAQ was down 355.49 points at closing. This was the biggest percentage fall since Black Monday, October 19, 1987. In just one week, nearly $2 trillion of stock market wealth had been eviscerated. This became known as the Internet bubble bursting. Jim Cramer said “The Gold Rush is over” and the days of entrepreneurs raising money on just an idea to an end. For companies that had created online divisions or tried to spin off Internet businesses, it was time to rethink everything. The .com craze had a string of irrational investing that came to an end. Or, did it?