Dotcom

What is Dotcom?

Dotcom is a term used to refer to a company that conducts a majority or all of its business via the internet. Other terms include “dot-com”, dot-com company, “.com” or dot.com. The businesses are normally conducted through a website with the domain “.com” in the URL. Popular dotcom companies include Amazon.com, eBay.com, Priceline.com, coupons.com, and shuttelfly.com. The companies survived the burst of the dot-com bubble.

The services and products of these businesses are typically delivered through various types of internet-based facilities. It also applies to physical products;  however, not all dotcoms offer physical products. The business structure and model of dotcom companies are heavily reliant on their internet presence to ensure longevity and guarantee functionality.

Common Dotcom Focus Areas

Dotcom companies commonly carry out business activities in the areas of Connection, Commerce, and Content creation and distribution.

• The companies that fall into the Connection area of business tend to provide internet services to consumers directly, following a business-to-consumer model.
• The companies that fall into the Commerce category tend to focus on the sale of used and/or new products over the internet. It is also known as e-commerce.
• The companies whose main area of focus is Content typically share and provide content, news, or other information for a fee (normally through a subscription) or for free. Such companies tend to make a considerable portion of their revenue from internet marketing and advertisements.

Brief History on Dotcoms

During the 1990s, dotcoms gained great traction and popularity among investors. The companies and their shares were worth more than a hundred million dollars, despite their profitability or revenue stages. Some of the companies still managed to attract investors and have high share prices during IPOs, despite being pre-revenue.

At such a time, it was believed that the companies needed to grow their target consumer bases in order to obtain and maintain a large market share. The fact that it could incur notable losses was irrelevant at the time. It would lead to what is known as the dot-com bubble.

The Dot-Com Bubble

The dotcom bubble began in the late 1990s, reaching its peak in the year 2000 and finally bursting in 2002.

During the 1990s, the number of individuals using and could access to computers increased by 10%. At such time, owning a computer was considered an essential part of day-to-day activities and life in the U.S. It made the information technology sector more attractive, and new IT companies began to surface.

The illumination of the IT sector brought about the creation and establishment of several internet-based businesses, including dotcoms. Due to the popularity and traction in the IT sector, funding for ventures within the space became easily available, with angel investors and venture capitalists seeking to make sound investments with the potential for sound revenue generation and overall growth.

Following the popularity gained by the IT sector, a few web-based companies (Netscape, Yahoo!, Lycos, and Excite) were able to make successful IPOs. Due to the nature of the businesses and their domains (“.com”), market participants began to believe that dotcom companies made for sound investments. People began to purchase shares in an internet-based business with a “.com” domain, with a number of the individuals selling off their shares in other companies in order to purchase dotcom shares.

Stocks on NASDAQ were valued at $6.71 trillion by the end of the first quarter of 2000. It was also when the crash began. By the end of the first quarter and the beginning of the second quarter (April) of 2000, the NASDAQ stocks dropped to $5.78 trillion in value. Their valuations declined in conjunction with their poor performance, and for some, their lack of revenue realization and generation.

As a result, certain businesses began to file for bankruptcy, and people were strongly advised to be wary of dotcom companies. Towards the end of 2002, the market capitalization of the NASDAQ stocks was down by $5 trillion.

Related Readings

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

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