The dotcom boom was an era of excesses. And there is no greater example of the dotcom excess than what happened to a company called Internet America on December 21, 1999.
On December 21, 1999, the share price of Internet America doubled. Nobody knew why. There was no news announced from them that day. But for some reason, FOMO kicked in and a critical mass of investors decided to invest in it that day, and the share price doubled. Maybe the words “Internet America” caught a lot of people’s fancy. Or maybe it was its ticker symbol of GEEK, one of the dotcomiest ticker symbols possible. Its share price reached more than $20 per share at its peak that day.
The boom was short-lived. In after hours trading, more than 1.2 million shares changed hands and it lost more than $4 in value due to investors cashing in on profits.
But this happened the same month as VA Linux’s IPO valuing that company at $9.5 billion even though it had yet to turn a profit.
What was Internet America?
Internet America was just a random provider of dial-up Internet based out of Texas. At the time, there were dozens of local Internet providers in any major size city, in addition to the nationwide providers such as EarthLink and AOL. Local providers would sometimes pick names that made them sound like they were larger than they were. You know, just in case they ever had the chance to go nationwide, their name would be ready for it. Presumably, that was what Internet America was thinking when they chose their name. I knew the owner of an Internet provider in Columbia, Missouri, a college town with a population of around 80,000 at the time, and he named his company US Internet.
The dotcom boom was full of stories of people who became millionaires, or at least paper millionaires, from investing in companies early enough, or investing in companies that became acquisition targets. Sometimes, these companies hadn’t even turned a profit yet. Geocities was a fantastic example of a company that sold for a lot of money based on popularity, in spite of profits being non-existent. If another company had funding and was looking to expand through acquisition, investors could turn big profits if they had that stock in their portfolios.
That’s how Mark Cuban became a billionaire. His company, broadcast.com, was acquired by Yahoo for $5.7 billion. I used that product to listen to Kansas City Royals games circa 1999-2000 while living out of market. I don’t know how Broadcast.com made any money, because it didn’t cost me anything. Yahoo couldn’t figure it out either, and shut it down in 2002. Cuban sold most of his Yahoo stock in 1999, making himself a billionaire.
What happened to Internet America?
Guess what happened August 14, 2001? A mere 602 days after its share price doubled when investors decided to stampede, NASDAQ delisted its stock. This generally happens when a company isn’t able to maintain a share price above a certain level. You can’t be listed on NASDAQ if you’re a penny stock, and, essentially, Internet America fell from being worth $20 per share to being worth less than a dollar per share.
But they didn’t go out of business. In fact, Internet America even made two acquisitions, and nearly made a third, after being delisted. This compared to four acquisitions while it was listed on the NASDAQ.
But dialup Internet wasn’t a business model that was built to last. Dialup modems running on copper phone lines couldn’t exceed 53 kilobits per second in transfer rate, which placed severe limits on what you could do online. Even in 1999, 53 kilobits didn’t seem fast. Broadband was the future, but the large telecommunications companies and cable companies were in a much better position to offer broadband than small, regional companies. Smaller players had to consolidate to get large enough to remain viable. That’s what happened to Internet America. In 2015, JAB Broadband acquired Internet America and folded it into Rise Broadband. Rise Broadband still exists as of 2024, providing high speed Internet in 16 states, primarily in the midwestern and western United States.
Problems with the dotcom boom
And that was the major problem with the dotcom boom. The investors didn’t necessarily understand the technology. They just saw dollar signs. Some companies, like Internet America and VA Linux, were operating on a valid business model with plenty of potential for short-term profits, but a limited shelf life. Red Hat was an example of a company that didn’t exactly know how they were going to make money, but they managed to stay in business long enough to figure out how to go about turning a profit.
And then there were companies like Netscape, a dotcom with a valid business model and a path to profitability, but they caught the attention of a more established rival who could afford to just give a clone product away. And it is very difficult to compete with free. Marc Andreesen didn’t know how to salvage Netscape, but managed to sell out soon enough to give himself a windfall. That doesn’t make him a business genius, it means he was lucky.
The dotcom bubble was mostly about finding the next Microsoft. I don’t think anyone in their right mind thought Internet America would one day be bigger than Microsoft. Maybe they thought they could make money off a merger down the road. Or maybe large numbers of people weren’t in their right mind in 1999. The obnoxious “Livin’ La Vida Loca” by Ricky Martin was one of the most popular songs of 1999, after all. People not being in their right mind neatly explains that.
David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.