Current levels of interest in e-business are at a five-year high. There is a lot of interest in starting a business on the internet; in investing in other people’s internet businesses; and in diverting advertising money from print and broadcast campaigns to online. This marks the recovery of the medium from a ‘trough of disillusionment’, to use research company Gartner’s biblical description .

In the mid-to-late nineties, the internet was widely tipped as the next big thing. The ownership of internet access had finally moved into the mainstream and was no longer the preserve of geeks with Computer Science degrees. It was starting to become clear to businesses that having an internet presence could give them affordable, worldwide access to customers like no other available media. Increasing capability to perform secure two-way communications over the web led to the possibility of carrying out business transactions over the internet and the birth of e-commerce. People started to talk about ‘dotcoms’, businesses that conduct a major part of their commercial activity online. Such businesses would be lightweight, global and operate 24/7. It was a fantastic idea and it’s easy to see why people thought that the internet would provide a certain route to financial success. Unfortunately, this led to greed and to an inability to distinguish between a good business plan for an internet business and a terrible one. Tony Davis of Red-gate software sums it up nicely: “There was too much money being thrown at too many silly ideas. People got all caught up in an ‘everything’s different now’ whirlwind and forgot that the old, boring economic rules still applied.”

Netscape, whose main product was a popular web browser, is described by Tim O’Reilly as the “standard bearer of Web 1.0″ . Their launch on Wall Street was one of the first of many staggering offerings over the period. Initially, the stock price at IPO was to be $12. After all, the company had less than $25mn in annual sales at that point, and though their usage rates were growing very strongly, it was in debt. However, the buzz around a major internet IPO was so loud that on August 9 1995, Netscape Communications Inc. went public with stock valued at $28 a share. At that point, the typical asking price for a technology IPO was around $15. This doubling in price did not seem to inhibit investors at all, though. In actual fact, it didn’t even open at this value, but at $71, such was the level of interest. The value rose to $75 and closed at $58 at the end of the day, giving the company a first-day cap of $2.7bn. Jim Clark, co-founder of the company with a 20% stake, suddenly had half a billion dollars of stock.

Confidence that Netscape was the key to the next big thing continued to grow. On November 28th, the share price leapt again, gaining 20 points in a day, to $131. At the time, industry analyst Michael Levine commented: “Everyone wants to be connected with Netscape. There’s a growing realization that it is the standard.”

Company PR Chris Holten recalls some of the excitement around the offering, which spread way beyond traditional investors :

Caller: I’m a very sophisticated investor who has a very substantial amount of money to invest in Netscape stock and I want to talk to someone to find out how I can get it cheap.
Finance: Have you spoken yet to our underwriters?
Caller: What’s an underwriter?
Finance: Well, basically Netscape sells the shares of stock to an underwriter, in this case it’s Morgan Stanley and also Hambrecht & Quist (interruption…)
Caller: Was that Hamburger Kissed?
Finance: No, H-A-M-B-R-E-C-H-T & Q-U-I-S-T
Caller: Now what are you calling them?
Finance: The underwriter. So we sell the shares to Morgan Stanley and they sell the shares to the public.
Caller: Could I talk to Mr. Stanley please?

Such stories are funny, but they are also very typical of a time when ordinary members of the public started to feel as though stocks and shares could make them money. Throughout the eighties, in the UK, privatisations of public companies were made more palatable by the Conservative government by marketing these offerings to the population as opportunities to cash-in. The ‘Tell Sid’ TV and press campaign around the sell off of British Gas in 1986 was perhaps the peak of this, likening the share offering to a horse-racing tip. Since these shares were offered well below their value, many made considerable profits over the period.

When we talk about the huge amounts of money raised, spent and frittered away during the dotcom boom, it’s worth remembering that we are not just talking about the people we’d want to lose money — ‘vulture capitalists’ and grey-haired zillionaires who don’t understand the internet but want a piece of the pie. We’re also talking about life-savings, penny stocks and pension funds. Back in California, meanwhile, as David Vise records in his history of Google, “The Netscape IPO symbolized the ushering in of the Internet era in Silicon Valley and created a gold-rush mentality” .

On April 12th 1996, the same thing happened again at the Yahoo! NASDAQ IPO. The stock shot up from $13 when the market opened to $43 an hour later, which equated to $1 billion for the company. Ten minutes after this, the stock dropped $10 to around $33, where it stayed for the rest of the day. In total, 8.5 million shares were traded in its first day. At that time, Yahoo! was not even remotely profitable, reporting a loss of $643,000 despite sales of $1.4 million during its first ten months. The company’s strategy was to use its own IPO to build its brand to the extent that it would drive them into profitability — a strategy that proved very successful. Since Yahoo! was already a well-known brand in the internet search market, the offering amplified this, considerably outperforming the IPOs of lesser known competitors Excite and Lycos the previous week.

The enormous fortunes being made through the stock market on internet tools and web sites were clearly of enormous interest to Venture Capitalists and other investors. Yet, they knew that these valuations were hit-and-miss. Investing in a single internet company was as likely to ruin you as make your fortune. So they spread their risk by investing in many internet companies, choosing a mixture of long-shot outsiders and what they thought were a sure thing. The company managers in these startups were typically very young.

Some of the best known ‘Siliconaires’ bear a startling resemblance. Jerry Yang and David Filo were on the Stanford University doctoral programme when they left to start Yahoo! in 1995. So was Jeff Bezos before he started Amazon in 1994. So were Larry Page and Sergei Brin before starting Google in 1998. In some respects, this was inevitable; you needed access to computers and time to research your product to come up with a successful dotcom. You also needed training and confidence with using computers, not to mention a lot of optimism about the business prospects of a company that didn’t have any physical products and operated over the web. And you needed to be in an atmosphere — like Silicon Valley — where people would take your ideas seriously and where the Sand Hill road Venture Capital companies like Kleiner Perkins and Sequoia Capital would potentially back your ideas. Many operated at a loss since they needed to build their brand and presence before customers would come. Some operated at a loss because their business model was fundamentally flawed. Their need for investment was tied to marketing themselves or tiding the owners over until internet surfers found them and converted their dreams and aspirations into gold.

This youthfulness led to the popular image of dotcoms being led by young men in polo shirts and jeans, handing out free soft drinks and sweets to their employees. They worked in ‘spaces’ rather than offices and installed table football (‘foosball’) in the board room. A lot were inexperience as managers. It was their first full-time job, and they’d become the CEOs of companies after a training in computer engineering rather than business. Many dotcoms were like this, though at least an equal number were very serious, very organised and extremely charismatic. Dotcoms also had a reputation for working long hours and demanding exceptional performance from their staff. Nonetheless, there were also a lot of companies who appeared to accept a lot of investment and were burning through it very quickly without getting any closer to the hoards of internet riches their investors so coveted.

The boom rose to a peak as the century drew to a close. In the UK, the First Tuesday club was formed in October 1998 by Julie Meyer to provide a networking opportunity for dotcom entrepreneurs and other interested parties, such as greedy VCs who sniffed the chance at a fortune. The club’s website had 500,000 registered members by 2000. In February 1999, Amazon’s Jeff Bezos, with a personal fortune estimated at $10.1bn, reached number 19 on Forbes’ global rich list and in September of the same year, UK Prime Minister Tony Blair warned businesses: “If you’re not exploiting the opportunities of e-commerce, you could go bankrupt.” There were 457 IPOs in 1999, most of them dotcoms, and in the case of 117 of these, stocks doubled in price on the first day of trading.

The new century saw record figures on international stock markets. On December 31 1999, the FTSE 100 peaked at 6,930.20. By January 14, the Dow Jones Industrial Average had hit an all-time closing high of 11,722.98.

January 30th marked the zenith of the dotcom boom. Sixteen dotcoms including pets.com (an online petfood store) and epidemic.com (an online marketing agency) spent up to $3mn each on 30-second advertising slots during the US Super Bowl XXXIV. As the Guardian reported on March 10th 2005, “In the US, the internet was everywhere. News magazines from the stalwart Time through to the internet cheerleaders Wired, Red Herring and the Industry Standard proclaimed the birth of the new economy. Wall Street analysts Henry Blodget, at Merrill Lynch, and Mary Meeker, from Morgan Stanley, were feted as royalty.”

The UK was late to the dotcom party in many respects, but had the dubious honour of spawning the last great dotcom IPO. The online travel agency and ticket company lastminute.com, run by Martha Lane Fox and Brent Hoberman, was simultaneously launched on both the NASDAQ and London Stock Exchange on March 14 2000. The company wasn’t making a profit, but this was an internet property, so that didn’t matter. The owners were expecting to make a staggering £500mn out of the flotation. True to form, it exceeded their expectations enormously — the shares gained 28% in a single day, giving the company a first-day valuation of £800mn.

And this was roughly the point at which everything started to go wrong. Three days after the lastminute.com flotation, Dutch ISP World Online had its IPO and raised $7.2bn. A week later, it was discovered that its founder, Nina Brink, had sold 1.2mn of her shares considerably below the offer price the day after its flotation. In May, fashion retailer Boo.com collapsed having burned through $135mn of investor’s money. “Mainly on a pretty website from which no-one bought anything,” says Steve Mulder of Molecular.

The following month, Psion, Baltimore Technologies, Kingston Communications and Thus, having been inducted into the FTSE 100 three months earlier, were ejected from the list. Super Bowl advertiser epidemic.com went bust, laying off 60 people after spending the $7.6mn they had raised in first-round financing. Toytime and Toysmart went to the wall, as did CraftShop.com and violet.com. In November, pets.com became the first listed US dotcom to collapse. Pets.com, another Super Bowl advertiser, had raised $82.5mn at their IPO only nine months earlier. The expressions “dot bomb” and “dot compost” started to gain currency.

Things went from bad to worse in 2001. Kosmo.com — free delivery of fast food and snacks — went bust despite $280mn of funding. Grocery delivery service Webvan.com went under, having raised $375mn at their IPO a mere 18 months earlier. In April alone, 17,554 people lost their jobs from dotcom startups; 64 dotcom companies closed the following month. In contrast to 1999, there were 76 IPOs in 2001, none of which doubled in price on the first day. On September 21, the tech-heavy NASDAQ index hit 1,423.19, having lost 70% of its value since the previous March. The party was over. Stewart Kirkpatrick, writing in the Scotsman in January 2002, noted, “You don’t need the right kind of eyes to see where the dotcom wave crashed. The tidemark is there for all to see in the second-hand office furniture warehouses of California. In their soulless aisles, you can browse among the personal effects of the dotcom casualties: teak boardroom tables; fine, leather, executives’ chairs; pool tables; and all the other trappings of e-excess.”

The final irony came the following January when Amazon announced its first quarter in profit. By that time, Jeff Bezos’ fortune was down to $1.5bn, number 293 on the rich list. Amazon, e-bay and Yahoo!, the most prominent survivors of the dotcom boom, have gone on to become the giants among internet businesses. But they would never again receive valuations quite so wildly removed from their profits.