Nasdaq bubble

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Nasdaq bubble

Post  Ryu on Wed Nov 12, 2008 1:33 pm

The Nasdaq Bubble
After the 1987 stock market crash, the global markets resumed their previous bull market trend. This powerful trend was driven by computer technology. Many of the technology stocks were listed on the Nasdaq exchange, which is an electronic marketplace.

In the early 1990’s, the personal computer was rapidly gaining acceptance for business and personal use. The computer was at last becoming more reasonably priced and more user-friendly. Computers were no longer the fodder of geeky hobbyists. They were veritable business tools, which were vital in gaining a competitive edge. Business applications were invented to aid the user in accounting, calculating taxes and word processing. Computers also began to compete with televisions as a form of entertainment, as PC video games flooded the marketplace. Corporations such as Microsoft prospered enormously as almost every computer system contained their operating system software.

During this time, the US computer industry focused more upon computer software versus hardware. This is because software was an extremely high margin product, due to it not being a physical product, like chips. Software companies produced a markup from selling licensed information, which costs very little to reproduce. Computer hardware became a commodity product, i.e. virtually indistinguishable from the product of any other competitor. Commodity products produce very little profits as each competitor constantly undercuts each other’s prices. Asian companies, with small manufacturing costs, produced virtually all of the hardware components at this point. Software, however, was protected as intellectual property with patents. Therefore, a product such as Microsoft Windows is a one of a kind product. This creates a strong barrier to entry, a benefit which is highly sought after in business.

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