RealTime IT News

Study: Dot-Com Shutdowns Are Accelerating

It is no secret that the e-commerce arena has a virtual cloud over its head. Since January, 130 Internet companies have shut their doors.

The situation has darkened in recent weeks. Since October, the industry has seen the demise of 45 online operations, including such operations as pets.com, mothernature.com. mortgage.com, cyberhomes.com, furniture.com and garden.com.

With the holiday buying season fast approaching, Webmergers.com Thursday released a study questioning why some of these firms are choosing to fold rather than proceed without adequate resources.

As part of its research, Webmergers.com asked merger and acquisition specialists to explain why so many Internet companies have shut down without finding merger partners, even at fire-sale prices.

Here are some of the explanations:

  • There's no there there: Some Internet companies simply don't have a sustainable business model, others simply have not yet built up assets of value such as a strong team, proprietary technology, customer lists, intellectual property, brand or domain names or other assets
  • The company put all its eggs in the funding basket: Many of the failed companies were expecting second- or third-round funding that appeared to be just around the corner. By the time they realized their investors had fled, they were already facing shutdown
  • They waited too long: Some companies began trying to sell themselves after cash began to run out. In that desperate condition, they lost all leverage with buyers and any ability to hire a good intermediary
  • VCs don't have time to play matchmaker: Venture capitalists and incubators are currently overwhelmed with simply tending to the basic needs of their portfolios. They don?t currently have resources for the time-consuming business of shopping a company. In some cases it?s just easier for them just to shut it down
  • Buyers no longer need to "buy talent": The Internet explosion has caused the rapid education of thousands of technical and marketing professionals. With a much larger employee base to choose from, acquirers find it less necessary to buy companies just to obtain scarce Internet expertise
  • Bricks and mortar companies are sitting on the sidelines: According to a previous Webmergers report, non-Internet companies accounted for only 9 percent of total dollars spent to acquire Internet destinations in Q2. As one analyst said, "It might be just more fun for bricks and mortar companies to watch these dot-coms die"
  • Tip: Most advisors recommended that a merger-and-acqusition strategy be implemented early on while cash is plentiful ? if not with the very first draft of the business plan. For example, Chase H&Q last week recently put Evite, the online invitations company, on the auction block while Evite still had $17 million in cash

    In compiling data, Webmergers.com also came up with the following statistics:

    • High-technology corridors naturally bore the brunt of the shakeout: Nearly 35 percent of shutdowns were in the state of California. New York accounted for 11 percent of the implosions and European companies made up 8 percent of the total
    • E-commerce sectors saw the highest shutdown: Closings are broken down to show 74 companies were e-commerce, 31 were content, 13 were service and 12 were infrastructure
    • Consumer sites are shutting down more quickly: Ninety-eight of the sites that were closed were geared toward consumers, 26 toward business/professional and six to a general audience

    Webmergers compiled its shutdown data from more than 50 public and private news and information sources. The study includes any Internet unit that has ceased operations and is either liquidating the company, seeking a buyer or attempting to reorganize through bankruptcy or some other means.

    The San Francisco-based company provides research and services for buyers and sellers o