Question

During the early days of the Internet, most dot-coms were driven by revenues rather than profits. A large number were even driven by “hits” to their site rather than revenues. This all changed in early $\mathbf{2000}$, however, when the prices of unprofitable dot-com stocks plummeted on Wall Street. Most analysts have attributed this to a return to rationality, with investors focusing once again on fundamentals like earnings growth. Does this mean that, during the $\mathbf{1990}\mathit{s}$, dot-coms that focused on “hits” rather than revenues or profits had bad business plans? Explain.

Short answer

Many dot com companies, such as eBay, Amazon, Microsoft, Qualcomm, and Cisco, have survived, implying that dot com companies did not necessarily focus solely on hits rather than a business plan with an adequate pricing strategy. The nature of this business necessitates focusing on web page traffic and the number of clients that can be secured to obtain income and benefits in the long run.

Step-by-step solution

Define business strategy

Business strategy may be defined as a plan of action or a series of decisions that helps entrepreneurs achieve specific business goals. It is nothing more than a master plan that a company's management adopts to maintain a competitive position in the market, continue operations, please customers, and achieve its goals.

Explanation

The dot com crisis, which occurred in the late $1990s$and $2000s$early, was caused by dotcom or internet-based businesses' speculation, particularly in the NASDAQ Composite index market, which rose to$587$ percent from $1995$to $2000$and then experienced a $75$percent drop in mid-$2000$, eroding all profits and driving many out of the market.

One of the reasons for the formation and subsequent burst of this bubble was that technology companies focused on Hits. These are associated with attracting customers and increasing traffic to their websites rather than developing and following a business plan with an appropriate pricing strategy that could generate long-term profits.

The excitement generated by these dot com firms resulted in scandalous values with bloated predicted earnings, earnings estimates, and industrial analysis, profitability, the P/E ratio. Thus, market trend analyses were all ignored.

However, many companies such as eBay, Amazon, Microsoft, Qualcomm, and Cisco survived because they did not necessarily focus on hits. Instead, they focused on a business plan with an adequate pricing strategy. The nature of this business necessitates focusing on web page traffic and the number of clients that can be secured to obtain income and benefits in the long run.