Was the dot-com bubble a real technology revolution or a mad crowd?

Both: the technology was real, but the prices ran far ahead of what the companies earned. The dot-com bubble was a stock market bubble that built through the late 1990s and peaked on 10 March 2000, as the Web spread and investors rushed into Internet start-ups. The Nasdaq Composite index rose 600% between 1995 and its March 2000 peak and then fell 78% from its peak by October 2002, giving up all its gains.

What did investors believe? Rapidly rising prices and confidence that the companies would turn a profit one day led many to overlook traditional measures such as the price-earnings ratio. The Nasdaq's price-earnings ratio reached 200, against a peak of 80 for Japan's Nikkei in its 1991 bubble. A Wall Street Journal article even suggested investors "re-think" the "quaint idea" of profits. At the height of the boom, a promising dot-com could go public and raise a lot of money even if it had never made a profit, and sometimes had no revenue or finished product. Most spent heavily on advertising under mottos like "get big fast".

Then it turned. In March 2000, MicroStrategy announced a revenue restatement and its stock, which had risen from $7 to as much as $333 in a year, lost 62% in a day. Pets.com, a much-hyped company, went out of business nine months after its IPO. By then most Internet stocks had fallen 75% from their highs, and by the end of the 2002 downturn stocks had lost $5 trillion in market capitalization.

The picture is mixed rather than simply mad. Many companies endured the crash: 48% of dot-com companies survived through 2004, at lower valuations. And venture capitalist Fred Wilson, who lost 90% of his net worth in the bust, said that much of the capital invested was lost, but much of it also went into a high-throughput backbone for the Internet, plus software, databases and server structure.