Dot-com Bubble - Aftermath

Aftermath

On January 11, 2001, America Online, a favorite of dot-com investors and pioneer of dial-up Internet access, merged with Time Warner, the world's largest media company, in the second-largest M&A transaction worldwide. The transaction has been described as "the worst in history". Within two years, boardroom disagreements drove out both of the CEOs who made the deal, and in October 2003 AOL Time Warner dropped "AOL" from its name.

Several communication companies could not weather the financial burden and were forced to file for bankruptcy. One of the more significant players, WorldCom, was found practicing illegal accounting practices to exaggerate its profits on a yearly basis. WorldCom's stock price fell drastically when this information went public, and it eventually filed the third-largest corporate bankruptcy in U.S. history. Other examples include NorthPoint Communications, Global Crossing, JDS Uniphase, XO Communications, and Covad Communications. Companies such as Nortel, Cisco and Corning were at a disadvantage because they relied on infrastructure that was never developed which caused the stock of Corning to drop significantly.

Many dot-coms ran out of capital and were acquired or liquidated; the domain names were picked up by old-economy competitors or domain name investors. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors. Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as Amazon.com and eBay, survived the turmoil and appear assured of long-term survival, while others such as Google have become industry-dominating mega-firms.

The stock market crash of 2000–2002 caused the loss of $5 trillion in the market value of companies from March 2000 to October 2002. The 9/11 terrorist destruction of the World Trade Center's Twin Towers, killing almost 700 employees of Cantor-Fitzgerald, accelerated the stock market drop; the NYSE suspended trading for four sessions. When trading resumed, some of it was transacted in temporary new locations.

More in-depth analysis shows that 90% of the dot-coms companies survived through 2004. With this, it is safe to assume that the assets lost from the Stock Market do not directly link to the closing of firms. More importantly, however, it can be concluded that even companies who were categorized as the "small players" were adequate enough to endure the destruction of the financial market during 2000-2002. Additionally, retail investors who felt burned by the burst transitioned their investment portfolios to more cautious positions.

Nevertheless, laid-off technology experts, such as computer programmers, found a glutted job market. University degree programs for computer-related careers saw a noticeable drop in new students. Anecdotes of unemployed programmers going back to school to become accountants or lawyers were common.

Turning to the long-term legacy of the bubble, Fred Wilson (financier), who was a venture capitalist during it, said:

"A friend of mine has a great line. He says 'Nothing important has ever been built without irrational exuberance'. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever. And in this case, much of the capital invested was lost, but also much of it was invested in a very high throughput backbone for the Internet, and lots of software that works, and databases and server structure. All that stuff has allowed what we have today, which has changed all our lives....that's what all this speculative mania built."