The first time fortunes were made – and lost
Saturday 21 May 2011
In the autumn of 1999, a new internet start-up called Boo.com was launched with the intention of creating a global fashion retailer, selling brand name clothes. The British-based company – founded by Swedes Ernst Malmsten, Kajsa Leander and Patrik Hedelin – spent £83.5m of venture capital in 18 months. Less than a year later, on 18 May, 2000, it was placed into receivership and liquidated.
While Boo.com represented one of the more spectacular busts in the dotcom crash of 2000, it was not alone. The first dotcom bubble lasted almost six years, from 1995-2000.
It is now viewed as a period of mass hysteria. Investors had little idea how the companies they were investing in would make money, resulting in the inevitable bursting of the bubble.
In the mid to late Nineties shares in internet start-ups soared when they listed on the Nasdaq stock market, despite the fact few of them made a profit. The unwavering belief shown by investors that companies would eventually turn a profit if their market share kept growing fuelled soaring share prices and drastically overvalued companies. A powerful myth was circulating – the dotcom age was rewriting economic laws
This confidence was exemplified by the amount of money being spent on advertising for the early start-ups. During its first fiscal year in 1999, Pets.com had revenues of £381,000, but spent £7.3m to market itself, including an advertisement during the 2000 Super Bowl TV broadcast. The company folded in November 2000.
This story was repeated throughout the tech industry. In 18 months, American online grocery delivery firm Webvan raised £108m to expand into eight cities. At its peak, the company was valued at £740m, but with small profit margins, it was never going to last. The company closed in 2001, with 2,000 jobs lost.
In Britain, a similarly extravagant amount of money was being invested in companies yet to show a profit. A small online travel agency started by Brent Hoberman and Martha Lane Fox was valued at £735m at its flotation on 15 March, 2000. A year later, the company, lastminute.com, was worth £70m. Lastminute.com, however, eventually turned a profit in 2002.
The dotcom boom peaked when the internet service provider America Online bought the media company Time Warner for nearly $200bn (£122.9bn) in January 2000. But in March the same year, the bubble burst, and the Nasdaq index fell by 78 per cent by October 2002. Speaking in 2010, Jeff Bewkes, chairman and CEO of Time Warner, acknowledged the merger was "the biggest mistake in corporate history".
Life & Style blogs
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Support for EU membership 'at highest level since 1991 with most Brits wanting to stay in'
- 1 Renee Zellweger on plastic surgery reports: 'I'm living a fulfilling life and I'm thrilled that perhaps it shows'
- 2 Disney announces new female-led film Moana
- 3 Banksy not arrested: Internet duped by fake report claiming artist's identity revealed
- 4 Australian café owner sparks debate after saying 'No' to having unruly children on premises
- 5 Video: Boxer Vido Loncar brutally assaults referee following defeat
iJobs Gadgets & Tech
£60000 - £70000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...
£40000 - £50000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...
£35000 per annum: Ashdown Group: 5 month Fixed Term Contract - Telecommunicati...
£26000 per annum + 25 days holiday & further benefits: Ashdown Group: Telecomm...