A Walk Through the Dot.Com Graveyard
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[SOUTH AFRICA] According to a report by the mergers and acquisitions tracking firm, Webmergers, at least 210 major dot.com companies closed their doors last year, resulting in a loss of 15,000 jobs and US $1.5 Billion in investment evaporating in December alone.
B2C took it in the neck, with 75% of closures falling in this sector. 55% of the fallen were e-commerce companies, 30% were content companies and the remainder were infrastructure and online service companies.
And while it was bad at the beginning, it got worse towards the end: 60% of the closures, 121 companies, happened in the 4th quarter; the combined closures for November and December totaled 86.
But it's important to remember that, as quick and painful as the correction was, it was a correction. Alan Greenspan had been warning everybody for 2 years. And the companies that got hurt the most were those companies that employed, shall we say, dubious business practices.
Many sites, e.g. Pets.com, focused on brand building and marketing and then failed to build a relationship with customers. Others -online banks leap to mind- bought customers with cash and then couldn't make money off them. And the likes of MotherNature.com, while they had a positive brand image and excellent 1-to-1 relationships with their customers, didn't have the infrastructure to back up their promise; companies need to deliver when they promise and handle returns smoothly and with a smile.
The worst of the bunch were those venture capital funded companies whose business plan consisted of making money with an IPO; once the capital dried up, these parasites on the face of the New Economy rightfully withered.
While PC sales may have slumped dismally, PDA and phone sales are soaring. Internet companies are going belly up but the number of Internet users is steadily climbing. The Nasdaq may be at a 2 year low, but Alan Greenspan has been saying that technology stocks have been overvalued for 2 years. Things are bad for some, but good for others and science is progressing still.
The New Economy is more than dot.com companies and Web sites. The bubble has burst - good. Perhaps now we can get back to honest economics, where a good business is one that actually has a good idea of how it's going to make money, not one that's just piggybacking on the latest fad.