Sock puppet? Tulips? 
Tulips were the first example of what happened to the dotcom bubble.
Tulips were a cool new flower that everyone wanted. A merchant went off to Turkey to get a boatload of bulbs. You bought a promissary note for one bulb for one guilder. You then sold this piece of paper (which is now a derivative (remember those)) to a friend for two guilders. Your friend now sells his for three …
Then the boat sinks on the way home, or the bulbs are no good.
One thing that nobody has said is that the very first thing that started the beginning of the end was over supply of fibre optic cable. Once those companies went down everyone started to re-evaluate other internet companies.
How does so puppets enter this question? Isn’t a sock puppet someone who has more than one account on the board & they just say nice things about their other handle?
Some dot coms are still around. Like amazon.com. Have they yet to make anything?
The tulipmania in Holland was a case of people spending ludicrous amount of money on a fad. See Charles MacKay’s book Extraordinary Popular Delusions and the Madness of Crowds for details. It’s a bit more complex than Tapioca says.
As for the Sock Puppet, it’s a reference to the unbelievably popular commercials for pet.com that used a ock-pupper dog/announcr. One f the more visible of the dot-com failures, since even people not on the Iternet saw the TV commercials.
Some points that have been given yet.
Too many dot-coms. Thousands of little corner store type dot-coms started up. That’s insane. First of all, there’s no real need for almost all of them, secondly, once the big hitters started to wade in, hardly any would have a chance. For online retailing, the old brick and mortar stores, with cash and name recognition, could wipe out almost all the puny mom-and-pop dot-coms in their sector. Look at eToys. A major online store one Xmas, gone the next. Amazon got lucky and got a long lead time and a lot of press before Barnes&Noble and Borders went online. No one has a chance to start an online book store now. Ditto music. (CD-Now eaten up by Amazon etc.)
You look at other tech sectors and you’re lucky if they are two big companies in the field. In many cases it’s just one. You’re never going to have 1000 online only CD retailers.
While most dot-coms had business plan that were just jokes (how was Dr. Koop ever going to make $?), there was a good idea behind some. As Triskadecamus touched on, for some it was spend, spend, spend to become that one giant in your field, wipe the others off the may, and then start charging enough to make money. For only a handful did this work, e.g., eBay. But it wasn’t capital intensive, etc. (Cringely has had several columns about why eBay has, and will, succeed.)
But for each eBay, there’s a thousand WebVans. Very capital intensive, never figured out how to make it work in even 1 city before they expanded. Even by that time WebVan should have understood that it needed to slow down, that there wasn’t any competition for their niche.
There was also the issue of tremendous growth. Geometric growth for a few years (and in part based on distorted data from WorldCom) was projected ahead indefinitely. Bad Idea. Geometric growth can only last a very short time. (Except for Moore’s Law, but it feeds itself.)
Note that at the peak of the bubble, 9 out of 10 stockbrokers were still recommending “buy” for Internet stocks. Remember, don’t ever follow stockbrokers’ recommendations when they go to “herd” mentality. If anything, do the opposite.
My own undocumented theory of another nail in the Dom.Com stack of coffins: Increase in oil prices around late 1990’s.
Thus raising postage rates.
Online, I can save $4.00 on pet food over the corner pet store, but I gotta pay $7.95 for shipping and handling, so I’m out $3.95. Forget online shopping then.
Another big factor: Most of the dot-coms were relying on getting money from ads (at least, those which were relying on getting money at all, in the first place). Who buys online ads? Mostly other online businesses. Where do they get the money to buy those ads? Mostly from their own ads. You get the picture.
You need at least some online businesses which get money from outside the dot-com world, and there weren’t enough of them to support all the rest. And if you look at the online businesses which did survive the bust (eBay and Amazon come to mind), in general they were the ones which were (and still are) bringing in money from outside.
The basic idea that fueled dot.coms was that if you were the very first company that got a particular business (toys, pet supplies, groceries, drugstore) onto the net, and grabbed up all the customers, then you were set.
This concept was based in part on one of the earliest dot.com successes, Amazon.com, which at the time only sold books. Although even Amazon wasn’t yet making a profit, it had an enormous market and widespread recognition, as well as huge amounts of publicity (the founder was Time Magazine’s Man of the Year). Many dot.commers set out to become the Amazon of their particular business. Unfortunately, they eventually discovered that a) books are a unique business that is well-suited for the internet, unlike groceries, for instance, and b) even Amazon wasn’t the great money-making machine that the media made it out to be.
Many of the dot.coms either had a completely unworkable product (or no product at all) or else they started so big (trying to cover the entire country at once) that they bled all their money before they could get their business off the ground. Many of the dot.coms depended on advertising for revenue. But the revenue came from other dot.coms, so as soon as some started to fail, there was a cascade affect.
Two highly recommended sources for more information:
Startup.com, a documentary that follows a dot.com from conception to implosion. This film is fascinating, because when the project began, the filmmakers thought they were recording the start of a huge success, and then the bubble burst and they ended up telling an entirely different story.
F*'d Companies: Spectacular Dot-com Flameouts. It’s not very well-written and uses a lot of vulgar language, but it very briefly tells the story of many of the worst dot-com excess stories. I followed the website F’dcompanies.com while the crash was happening, and this book gives a good capsule summary of how it all fell apart.
But porno dot.coms continue to rake in the shekels.
There’s a lesson in all this somewhere.
Also, when the dotcom bubble burst, the fall drove down all stock prices. Tech companies that did have a viable business plan were driven out of business when their stock prices went through the floor, the stocks were taken off whatever board they were traded on and loans came due because the stock was no longer listed.
I’ve heard it as the Clinton Bubble or the bigger idiot theory.
In short people assumed they could dump the stock they bought at a higher price then they bought it regardless of the actuall value
A few dot coms gave free shipping & sold stuff below cost for a long time, plus some ISP’s gave free ISP accounts. The rest is history.
Here is another article just came out that explains another angle:
"SAN JOSE (AP)
The newspaper examined records of stock sales by executives, board members and venture capitalists at 40 companies that have become almost worthless since March 2000. It found that the insiders walked away with $3.41 billion from the sales while, by Sept. 30, their companies’ total market value fell 99.8 percent to $229.5 million. "
http://www.montereyherald.com/mld/montereyherald/4699840.htm
I’m aware of a specific IPO(withdrawn because of the stock crash), filed with the SEC in May 2000.
At that time it was a “free” webhosting company. They had been in operation about 2 years. The previous quarter their operating loss was $14 million, the net worth of the company at that point was negative $30 million.
The only asset seems to have been the names of several hundred thousand freeloaders like myself, who had opened multiple free hosting accounts numbering in the millions.
That’s called the “First Mover Advantage,” or something like that. That’s why everybody in these dotcoms supposedly work like mad, you know, “Internet Speed.”
Ah, we have a few insiders here.
For me, I worked for 3. The first job lasted 2 months before a headhunter called me up and offered this great job I couldn’t refuse. Then another 2 months and it’s off to the third job.
In the span of 4 months I got promoted from Senior Network Admin to IT Director. The adrenalin rush was awesome. The whole business plan looked perfect and everything was 100% rosy. I got a massive raise, offered stock options, and had fringe benefits out of my nose.
Too bad it didn’t last.
An excellent book on the subject is Dot.con: The Greatest Story Ever Sold.
Simple reason: people let greed get in the way of common sense.
So how many web-based companies (excluding brick-and-mortar tie-ins and porn) are actually legitimately profitable nowadays? Amazon seems forever on the cusp, depending on the quarter and which rules they’re using, while eBay is raking in the cash, and Expedia is in between, with strong but not fabulous revenue. Are there any others?
priceline.com, pricewatch.com, yahoo.com, plus, those of the big stores are doing alright, staples.com, officedepot.com etc.