The Internet began to rise in the early part of the decade, but the major landmark was the launch of the Netscape Navigator, the pioneering Internet browser. This, combined with significant infrastructure investments on the part of telecommunications companies, helped to drive the rapid growth of the Internet through the 1990s. Already in the mid1990s, companies in the Valley and beyond were beginning to exploit the commercial value of the Internet. By 1995, future giants such as eBay and Amazon had been established.
The early successes of these and other pioneering Internet firms hinted at the commercial viability of the Internet. Investors noted that the opportunity to buy a future global giant at IPO pricing, or near to it, was a rare opportunity. This fueled demand for stock in Internet companies. Although the business models for most Internet companies were unproven, investors were not willing to wait, fearing that it would be too late to buy in once the companies were profitable.
Adding fuel to the fire was the venture capital community. The venture capital business was well-established in the Silicon Valley, as the cluster of strong technology companies and their offshoots had attracted venture capital groups, who then developed a strong knowledge of the local community and its players. This intersected with a strong demand for Internet stocks and the venture capitalists began to pump money into any Internet venture they could find, with the expectation that they could then take that firm to an IPO and recoup their investment at a tidy profit, quickly.
The dot-com boom fueled tremendous growth in the area as well. The local economy burgeoned as investor money poured into the area, creating high paying jobs, growth opportunities and a source of business for non-tech entrepreneurs. Property values increased and the economic climate became one of unbridled optimism, where money kept coming into the region, fuelling startups both viable and not, in addition to increases in home values and other economic spinoffs.
The peak of the dot com era came in 1998 and 1999, when virtually any Internet company could easily obtain substantial venture capital financing and go to IPO, sometimes without...
While the dot-com bubble had been launched on the success of firms that had strong business models and would eventually become giants, many of the new firms were created seemingly for the sole purpose of attracting capital.
The easy money provided little incentive to work hard. Companies began throwing money away on frills and frivolities. Firms began to overpay staff in order to attract talent amidst a shortage of experienced programmers and web designers. This had two effects. One was that firms found other ways to attract workers, often through creating luxurious work environments.
Startups found themselves flush with money even with no viable business model. Entrepreneurs became millionaires overnight. However, the demotivational aspects of easy wealth took hold and some companies failed to generate any revenue at all, much less profit. Investors began to learn how to differentiate between viable Internet companies and non-viable ones. The capabilities and potential of the new technologies were becoming more readily apparent. No longer did it seem plausible that at any point in the near future we would buy fifty pound bags of cat food using the Internet terminal embedded in our espresso machine. Internet stocks began to lose value. This, having never happened before, triggered a loss of faith among investors, and the bottom fell out of technology stocks. The Internet boom was over.
California's history is tied to booms such as the dot-com boom. That this example occurred so recently illustrates that the culture and institutions of boom-bust cycles still exist in the state today. The dot-com bubble is sometimes viewed as a singular, unique event, yet in many ways it is not. It is a recurring occurrence in California, and a study of the bubble can allow us to gain significant insight into the state's history and its makeup. The bubble has shaped our culture just as it has shaped the demographics and economy of the Bay Area. It is these facets of the history that are most fascinating, and the audience will enjoy learning about the bubble precisely because of the way it mirrors California as a whole while at the same time being a unique event in our lifetimes.
