Everybody in business is being told to ‘dot com’ it – and quick. But in the wake of a spate of high profile dotcom disasters – Steven Palmer asks if British businesses should continue to be optimistic about the benefits of the Web?
Over the last fortnight the national press has been full of the fate of those diving dotcoms – Boo.com and then NetImperative.com. There has also been a steady flow of warnings from City analysts.
The most recent red flag came from accountancy giants, PricewaterhouseCoopers, as Boo.com went to the wall. However this was just the latest in a series of warnings from market analysts. GartnerGroup warned that between 95 and 98 percent of consumer focused dotcoms would collapse within two years.
Forrester Research also predicted a shakeout in the industry as net start-ups burn through their initial funding. Investment bank, Goldman Sachs, warned that nearly a third of publicly traded dotcoms will need to raise additional funds by the end of the first quarter next year.
However, at present there are still investors willing to stump up cash for a good idea. A survey from Deloitte and Touche revealed that 60 percent of venture capitalists expected investment in dotcoms to increase over the next six months.
Yet the evidence of when (sometimes it’s even how) these companies will make money is murky. Since 1995 over 450 Internet companies have floated on the US stock markets – with a combined market value of over $1.5 trillion.
Nearly nine out of ten of these companies have either failed to make a profit or the money made is so small as to be insignificant.
The online landscape is rapidly consolidating as companies attempt to survive or become more competitive. The companies that aren’t going out of business or being taken over are merging. Auctioneers, QXL merged with German rival Ricardo.de, Yahoo with Time Warner and Dixons looks likely to be selling up the majority of its holding in Freeserve.
However it would seem this pattern is not destined to be repeated for SME businesses that embrace ecommerce.
Graham Avory, communications director at e-centre pointed out that those SME businesses that were simply extending their business into ecommerce actually had a better chance of success than pure dotcom operations.
“A bricks and mortar business that has a well established back office set up and a proven business plan can be very successful online,” said Avory.
“People rush up to me with what they think is an excellent dotcom idea, but once you’ve explained the necessary infrastructure and logistics necessary its not so realistic – it’s fine having a fantastic looking site and a great idea, but it’s pointless without a good fulfillment operation sitting behind it.”
He added that he believed Boo.com suffered because it lacked sufficient back office support. Other industry watchers have raised question marks surrounding the company’s business plan and management.
Consolidation and industry shakeouts are a feature of all business sectors. Azeem Azhar, founder of Internet incubator, eSouk.com - one of NetImperatives’ investors - said that this shakeout did have a positive side, as it would separate the wheat from the chaff in terms of deals that get funded. “It’s part of growing businesses,” said Azhar. “You’re left with determined entrepreneurs.”