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Study Quantifies B2C Problems

Web ventures set to tackle the potentially lucrative but so far largely unprofitable B2C (Business to Consumer) market have more reasons to worry.

New York-based research firm Getzler & Company released a study August 1 reporting that eTailers and content providers have suffered the most as a result of investors' changing attitude toward Internet companies. The numbers suggest the B2B bandwagon is still going strong, while "B2C" is more and more akin to an expletive than a business model.

"B2C is in a wipeout phase," says Art Marks, general partner at the New Enterprise Associates venture capital firm in Menlo Park, CA. "People don't want to be eBayed, or Amazoned, or Etoyed anymore."

The 150 B2Cs tracked in the study have undergone more than 10,000 layoffs, according to the report, a proportion larger than any other segments of the Internet economy.

"While there has been lots of speculation about the state of B2C companies, until now there has been no confirmation of just how badly the B2C sector has weathered the recent downturn,'' says Brian N. Mittman, VP at Getzler.

The report counted 119 B2C firms that had experienced layoffs or had been shut down entirely, compared with only nine B2B "strict Internet plays''.

"The B2C market is a low-margin, high-capital business,'' says Dwayne Walker, CEO of Network Commerce, an infrastructure supplier. "It takes forever to get profitable, and VCs don't want to wait forever."

The report also says content providers, which publish news and other information in the hopes of generating advertising revenue, are among the most vulnerable of B2C firms.

"Content providers and eTailers accounted for 75% of B2C firms [in our study] experiencing layoffs,'' says Mittman.

Walker suggests the downturn will likely lead to consolidation, wherein similar B2C plays merge rather than compete for the same customers. So far, however, the Getzler study says that has yet be the case, claiming most layoffs were due to downsizing or bankruptcy, rather than mergers or acquisitions.

B2B LOTS BIGGER

Forrester Research expects that B2B eCommerce will be responsible for approximately $1.5 trillion in transactions by 2003, 14 times larger than their estimate for B2Cs.

"B2C is just out of favor," says James Graf, managing director at Merrill Lynch.

Out of favor, maybe, but maybe not dead. Some analysts predict the B2C backlash is not the end, but just a phase indicative of any new business arena. Noah Yasskin at Jupiter Communications says the key to B2C success will come mostly from brick & mortar companies continuing to take their offline presence online.

"The hype IS over," says Yasskin, "But established retailers can bring their expertise in cross-promoting products, marketing and merchandising, along with their warehousing and fulfillment infrastructures to the market. A lot of them haven't done it so far, whether due to lethargy or inertia, but there is certainly an opportunity there for them."



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