How Is the Current NASDAQ Internet Business Model Different From the NASDAQ of 15 Years Ago?

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By Jacob Maslow

stock market charts on multiple screensIf you are slightly worried or greatly worried about the NASDAQ hitting the 5,000 mark, you are hardly alone. A lot of investors saw their net worth evaporate overnight thanks to the Dot Com crash. In fact, the 2000 crash in tech stocks has made many investors swear off tech stocks for life. This really is too bad because that means they would have missed the boat completely. There have been huge gains in mobile stocks, Google search engine stocks, and other tech stocks that came of age after the big crash of 2000.

From one particular perspective, things have fundamentally changed. You have to understand that in the year 2000, a lot of those internet companies were generating ads revenue that were somehow derivative of traffic that came from other companies. If other tech companies’ advertising fortunes waned, this produced a domino reaction that sunk smaller internet companies. This interrelationship and closed ecosystem has been unfairly described as a Ponzi scheme. I beg to differ.

While there are some interrelationships and interdependencies, for the most part, there were a lot of independent variables at play. If given enough opportunities and enough time, the whole ecosystem would have evened out and grown. Well, that didn’t pan out and the Dot Com crash wiped out a lot of fortunes. What is fundamentally different now from the NASDAQ of 15 years ago?

The good news is that there are a lot of differences. First, a lot of internet companies actually make their money from service sales and online revenues that are not connected to advertising. This is a fundamental shift in business model and business strategy. You have to understand that anything related to advertising eventually comes back to the overall health of certain segments of the economy. With a more diversified risk structure and diversified business model landscape, the chances of an advertising-based revenue implosion seem a bit more remote. If there is any one factor that is going to insulate the current NASDAQ 500 from sharing the same fate of the companies that constituted it 15 years ago, it would be business model and revenue stream diversity.

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