Easy Dot Com, Easy Dot Go
A financial earthquake shakes the confidence of the Internet class
Even companies like Buy.com and Pets.com, both of which raised boatloads of cash with IPOs this year, have been socked--hard. Buy.com is trading at about half its offering price, Pets.com about 30 percent. Why? Investors simply don't believe their business strategy will work. Buy.com loses money on the merchandise it sells but says it plans to make up for it with advertising, which investors find less than credible. Pets.com, which received attention for its goofy ads featuring a sock puppet, sells pet food and hopes to create an online community of pet owners. But the company is up against better-financed competitors like Petopia and Petsmart, which have offline stores in addition to Web sites. "Their slogan is 'Because pets can't drive,' " venture capitalist Bob Kagle, a partner at Menlo Park, Calif.-based Benchmark Capital, says of Pets.com. "It should be 'Because pets can't invest.' "
The shift in sentiment may be permanent. True, the stock markets may settle down and start climbing again. And no matter what the markets do, it's clear that the Internet will continue to revolutionize society. But most analysts agree that the easy money in the E-commerce revolution is gone for good.
Avoiding ".com." Indeed, the mood change has been so powerful that Jonathan Gaw, an analyst at International Data Corp. in Mountain View, Calif., reports that he just had a conversation with a new Internet company that deliberately refused to use the ".com" suffix in its name. Putting a dot com at the end of a company's name used to practically guarantee a higher stock price and easier access to cash. Now companies are worrying that it means they won't be taken seriously. "If you believe all commerce will be E-commerce, why focus on the 'E' part of it?" Gaw says.
It's not as if investors now know what business model works for a dot com. They most certainly don't. But they are increasingly sure about what doesn't work: blanketing the airwaves and billboards with advertising; generating revenue with advertising; and refusing to build an offline presence. Even Jeff Bezos, chief executive officer of Amazon.com and one of E-commerce's chief cheerleaders, is expected to set up offline stores for his customers.
"There isn't a lot of customer loyalty on the Web," says Michael Dermer, CEO of 800giftcertificate.com. "So how can it make sense to spend millions to acquire them?" Adds Forrester Research Chief Executive George Colony: "The idiocy of the hollow dot coms was embarrassingly revealed during this year's Super Bowl. Most of the ads were a phenomenal waste of money." The lesson, he says, is old fashioned but inescapable: Successful companies like Microsoft and Cisco don't get built overnight. They take "years of blood, sweat, tears, developed wisdom, and enlightened business decisions," Colony says.
The unwinding of the speculative excess is likely to be ugly. Right now, virtually everyone professes to be glad the bubble has been pricked. "The era is gone when you can come up with an idea and slap it on the Web and make a million dollars," says Andrew Kodner, account manager at ShortCycles, a business-to-business software company. "It doesn't help the economy and it doesn't help the world."
advertisement
