For several years in the late 1990s, e-commerce companies, which quickly came to be known as "dotcoms," could hardly avoid having money thrown at them by investors looking to cash in on what was widely touted as the financial windfall of the New Economy. Vigorous investment sent the stock valuations of dot-coms sky high, far outpacing what would be expected of firms based on their fundamentals. But the ever-climbing stock markets seemed to confirm to many investors that the Internet era had pushed the economy into a new phase where traditional business logic and investment patterns were obsolete. Dotcoms were widely seen as being among the hallmarks of this new era in business, and many players rushed onto the scene in an exuberant bid to grab a piece of the lucrative action.
Sober-minded analysts, however, recognized that the good times couldn't last, and that the market was due for a correction. A number of factors led to the collapse. In addition to the much-discussed precarious structure of the pure-play, dot-com business model of the late 1990s, market analysts insisted that the high-flying tech market was significantly overheated and due for a fall. With competitive pressures growing out of proportion with any market demand and extremely weak financials, skittish investors began fleeing the dot-com crowd as quickly as they had joined them, and the stage for the e-commerce shakeout was set. That correction finally came in 2000; in March the technology markets plummeted, and for the rest of the year, once proud and seemingly invincible dot-coms struggled to survive. Hundreds of firms closed their virtual doors in 2000, taking tens of thousands of jobs with them. One leading dot-com benchmark, the Goldman Sachs Internet Index, finished 2000 about 67 percent below its level at the start of the year. Merrill Lynch estimated in late 2000 that three out of every four public dot-coms would shut down within five years.
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