Dot-com

Dot-com (also dotcom or redundantly dot.com) companies were the collection of start-up companies selling products or services using or somehow related to the Internet. They proliferated in the late 1990s dot-com boom, a speculative frenzy of investment in Internet and Internet-related technical stocks and enterprises. The name derives from the fact that many of them have the ".com" TLD suffix built into their company name.

Free spending

According to dot-com theory, an internet company's survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. The phrase "Get large or get lost" was the wisdom of the day. At the height of the boom it was possible for a promising dot-com to make an initial public offering of its stock and raise a substantial amount of money even though it had never made a profit. But then the matter of burn rate came into play as capital was expended in operating a company with no profit and no viable business model.

Related Topics:
Initial public offering - Burn rate - Business model

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Public awareness campaigns were one way that dot-coms sought to grow their customer base. These included television ads, print ads, and targeting of professional sporting events. The January 2000 Super Bowl featured seventeen dot-com companies (most memorably pets.com) that each paid over $2 million for a 30-second spot. In January 2001, just three dot-coms bought advertising spots. Iwon.com gave away $10 million to a lucky contestant on an April 2000 show that aired on CBS. Many dot-coms named themselves with onomatopeic nonsense words that they hoped would be memorable and not easily confused with a competitor.

Related Topics:
Pets.com - Onomatopeic

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Not surprisingly, the "growth over profits" mentality and the aura of "new economy" invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with stock options in lieu of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.

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Cities all over the United States sought to become the "next Silicon Valley" by building network-enabled office space to attract internet entrepreneurs. Communication providers, convinced that the future economy would require ubiquitous broadband access, went deeply into debt to improve their networks with high-speed equipment and fiber optic cables. A Worldcom executive famously remarked that internet traffic would double every hundred days for the foreseeable future. Companies that produced network equipment, such as Cisco Systems, profited greatly from these projects.

Related Topics:
Broadband access - Fiber optic - Cisco Systems

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Similarly, in Europe the vast amounts of cash the mobile operators spent on 3G-licences in Germany, Italy and the United Kingdom for example led them into deep debt. The investments were blown out of proportion regardless of whether seen in the context of their current or projected future cash flow, but this fact was not publicly acknowledged until as late as 2001 and 2002. Due to the highly networked nature of the IT industry this quickly led into problems for small companies that were dependent on contracts from operators.

Related Topics:
Europe - Mobile - 3G - Germany - Italy - United Kingdom - Cash flow - 2001 - 2002 - IT

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