In March 2000, the NASDAQ peaked at 5,048—more than double its value from a year earlier.
Companies with no revenue, no profits, and often no viable business model were worth billions. Pets.com spent $27 million on advertising (including a Super Bowl ad) and collapsed nine months after its IPO.
Webvan raised $800 million to deliver groceries. It shut down after burning through all the money in less than two years.
Kozmo.com promised one-hour delivery of anything—no minimum order, no delivery fee. You could order a single pack of gum and they’d deliver it. They went bankrupt in 2001.
These weren’t edge cases. They were typical.
By October 2002, the NASDAQ had fallen to 1,114—a 78% collapse that wiped out $5 trillion in market value.
Hundreds of companies went bankrupt. Millions of investors lost everything.
This wasn’t a natural disaster. It was herd mentality on a global scale.
How It Started
The internet was revolutionary. That part was true.
By the mid-1990s, it was clear the internet would change business, communication, entertainment, commerce—everything.
The logic seemed sound:
- Internet adoption is exploding
- E-commerce will replace traditional retail
- First movers will dominate
- Therefore, internet companies = unlimited upside
Early success stories reinforced this:
- Amazon’s IPO (1997): Stock rose 100x
- Yahoo’s IPO (1996): Made early employees millionaires
- eBay’s IPO (1998): Instant billion-dollar company
Investors rushed in. The fear of missing out was overwhelming.
The Herd Stampede
By 1998-1999, rationality had left the building.
The “Metrics”:
Traditional Valuation (before 1995):
- Revenue
- Profit
- Cash flow
- Price-to-earnings ratio
Dot-Com Valuation (1999):
- ❌ Revenue doesn’t matter (“We’re building market share”)
- ❌ Profit doesn’t matter (“We’ll monetize later”)
- ❌ Cash flow doesn’t matter (“Investors will keep funding us”)
- ✅ “Eyeballs” (website visitors)
- ✅ “Clicks”
- ✅ Having “.com” in your name
Companies were valued on traffic, not revenue.
The Insanity:
1. The “.com” Name Premium
- Computer Literacy Inc. → fatbrain.com: Stock jumped 33%
- Zapata Corporation → Zap.com: Stock jumped 200%
- Companies literally added “.com” to their name and watched stock prices soar
2. Pets.com
- Sold pet food online (heavy, low-margin products)
- Spent more on shipping than revenue from sales
- Spent $27 million on marketing in 9 months
- Revenue: $619,000
- Losses: $147 million
- IPO valuation: $290 million
- Shut down: November 2000 (9 months after IPO)
3. Webvan
- Online grocery delivery (before anyone wanted it)
- Built massive warehouses across the country
- Burned $800 million
- Revenue: Never profitable
- Shut down: July 2001
4. Kozmo.com
- Free one-hour delivery, no minimum order
- Business model: Lose money on every transaction, make it up in volume (?)
- Investors: Amazon, Starbucks
- Result: Bankrupt in 2001
5. Flooz.com
- Digital currency (before crypto)
- Spokesperson: Whoopi Goldberg
- Business model: unclear
- Result: Bankrupt, CEO indicted for fraud
The Hype Machine:
TV Shows:
- CNBC became the channel for stock tips
- “Get rich quick” shows proliferated
- Day trading became a full-time job for amateurs
Magazine Covers:
- “Everyone Ought to Be Rich” (1999)
- Success stories of 25-year-old dot-com millionaires
- FOMO everywhere
IPO Mania:
- Companies went public with no revenue
- First-day “pops” of 500%+ common
- People quit jobs to day-trade IPOs
VC Funding:
- Any business plan with “internet” got funded
- $100 billion deployed in 1999-2000
- Due diligence: “Do you have a website?”
The Psychology
The dot-com bubble was pure herd behavior:
1. Social Proof
“Everyone’s investing in tech. Am I the only idiot not making money?”
2. Recency Bias
“Internet stocks have gone up for 5 years. They’ll keep going up.”
3. Confirmation Bias
Every success story (Amazon, eBay, Yahoo) confirmed the narrative. Failures were ignored.
4. Authority Bias
“Analysts say tech stocks will keep rising. They’re the experts.”
(Analysts worked for firms that earned fees from IPOs. Conflict of interest, anyone?)
5. “This Time Is Different”
“Old valuation metrics don’t apply to the internet.”
(They did.)
6. Fear of Missing Out (FOMO)
The most powerful driver. Your neighbor was making $10k/month day trading. Could you afford NOT to invest?
The Collapse
By March 2000, cracks appeared.
A few high-profile dot-coms missed earnings. A few IPOs failed to pop. Investors started asking uncomfortable questions:
“Wait, when will these companies make money?”
“How is selling pet food online at a loss sustainable?”
Once confidence cracked, the herd stampeded for the exit:
- March 2000: NASDAQ peaks at 5,048
- April 2000: Down 34%
- 2001: Continuous decline
- October 2002: NASDAQ at 1,114 (down 78%)
The Carnage:
- Pets.com: $300M valuation → $0 in 9 months
- Webvan: $1.2B raised → bankrupt
- Boo.com: $135M raised → bankrupt in 18 months
- eToys: $8B market cap → $0
- Kozmo.com: $280M raised → bankrupt
Even survivors crashed:
- Amazon: $107 → $7 (down 93%)
- Cisco: $80 → $13 (down 84%)
- Intel: $75 → $15 (down 80%)
$5 trillion in wealth evaporated. Millions lost jobs. The economy entered recession.
What Is Herd Mentality?
Herd mentality is the tendency to follow the crowd, abandoning individual analysis in favor of group behavior.
In markets, it creates bubbles:
- Early adopters make money (Amazon, eBay actually had business models)
- The crowd sees success and piles in
- Prices rise due to demand, not fundamentals
- Late adopters buy at peak (Pets.com IPO investors)
- Collapse wipes out late adopters
Herd mentality feels safe. If everyone’s doing it, it can’t be wrong, right?
Wrong.
In Software Engineering
Herd mentality destroys tech teams:
Framework Chasing
2010: "Backbone is the future!"
2013: "Angular is the future!"
2015: "React is the future!"
2020: "Svelte is the future!"
2024: "htmx is the future!"
Reality: Most projects would be fine with any of them
Herd: Rewrites codebase every 3 years
Microservices Mania
Google uses microservices
Blog posts: "Microservices are best practice!"
5-person startup builds 30 microservices
Reality: Coordination nightmare, slow development
Lesson: Cargo-culting big tech doesn't work
NoSQL Everywhere
MongoDB launches
Herd: "Relational databases are dead!"
Rewrites working Postgres to MongoDB
Reality: Loses ACID guarantees, regrets it
Lesson: Use the right tool, not the trendy tool
Cryptocurrency Everything
2017: "Blockchain will solve everything!"
Projects: Blockchain for supply chain, voting, cat photos
Reality: Centralized databases work fine
Herd: Wasted billions on unusable systems
Serverless Everything
AWS Lambda launches
Herd: "Servers are dead!"
Migrates everything to serverless
Reality: Cold starts, vendor lock-in, debugging hell
Lesson: Servers are fine for most things
How to Resist the Herd
1. Ask: What’s the Fundamental Value?
Strip away hype. What’s it actually worth?
Pets.com: Sells $1 million, loses $147 million
Valuation: $300 million
Math: Doesn't work
2. Check Your Sources
Who’s telling you to buy/adopt?
Analyst rating tech stocks: Works for investment bank that underwrites IPOs
Tech influencer promoting framework: Has sponsorship deal
VCs hyping AI: Literally invested in AI companies
3. Look for Dissent
If everyone agrees, someone’s wrong.
1999: "Tech stocks only go up!"
The dissenters: Ignored, mocked
2002: Dissenters were right
4. Distinguish Signal from Noise
Some internet companies HAD real businesses:
- Amazon: Actually selling products profitably
- eBay: Facilitating real transactions
- Google: Dominant search + ad revenue
Others didn’t:
- Pets.com: Losing money per transaction
- Webvan: Unsustainable business model
The herd couldn’t tell the difference.
5. Avoid Resume-Driven Development
Are you adopting this tech because:
- ✅ It solves a real problem better
- ❌ It looks good on your resume
- ❌ Everyone’s talking about it
- ❌ You’re afraid of being “left behind”
6. Wait for the Trough
The hype cycle has phases:
- Innovation trigger
- Peak of inflated expectations (everyone’s doing it)
- Trough of disillusionment (reality sets in)
- Slope of enlightenment (actual use cases emerge)
Adopting at phase 2 = maximum hype, minimum value.
The Deeper Lesson
The dot-com bubble wasn’t about the internet being overhyped. The internet DID change everything.
Amazon, Google, Facebook, Netflix—they’re worth trillions today.
The bubble was about herd behavior making people unable to distinguish real value from hype.
Pets.com was real. Amazon was real. Both were “internet companies.”
But one had a sustainable business. The other didn’t.
The herd couldn’t tell the difference because everyone was too busy following each other.
The Programmer’s Perspective
As engineers, we live through smaller hype cycles constantly:
- Frameworks
- Architectures
- Languages
- Methodologies
The same psychology that drove the dot-com bubble drives technology adoption.
Ask yourself:
- Am I choosing this because it’s the best tool?
- Or because everyone on Twitter says so?
Because the next time someone says:
- “You HAVE to learn [language]”
- “Monoliths are dead”
- “Everyone’s using [framework]”
Remember Pets.com.
Remember the $300 million company that sold pet food at a loss and died in 9 months.
Remember that herd behavior feels smart until it doesn’t.
Key Takeaways
- ✅ Herd mentality drives bubbles, not fundamentals
- ✅ “Everyone’s doing it” is not analysis
- ✅ Distinguish real value from hype
- ✅ Check your sources and their incentives
- ✅ Wait for the trough of disillusionment
In 1999, you were an idiot if you weren’t buying tech stocks.
In 2002, you were an idiot if you had.
The herd was wrong. Both times.
The next time you’re about to rewrite your app in the hot new framework because “everyone’s using it,” remember:
In 1999, everyone was buying Pets.com.
In 2000, Pets.com was bankrupt.
The herd isn’t always wrong.
But when the herd is running, ask yourself:
Are we running toward something? Or off a cliff?
Because by the time you know the answer, it’s too late to change direction.