As Venture Capitalists Cower, Traditional Companies Enjoy "Blue Light Specials" on B2C Dot-Coms, According to Gartner.

Business Editors

STAMFORD, Conn.--(BUSINESS WIRE)--June 6, 2000

According to Gartner Group, Inc. (NYSE: IT and ITB), traditional companies are enjoying investment and acquisition "blue light specials" on business to consumer (B2C) dot-com companies.

As dot-com valuations grow soft in a tighter capital market, they are attracting investment and acquisition moves from traditional companies seeking to "buy rather than build."

The demise of pure dot-coms will be offset by the investments and mergers originating not from venture capitalists, but by traditional businesses that need to leverage the Internet to build their businesses. Dot-coms can present excellent opportunities for traditional businesses that need to expand brands, add distribution e-channels, develop interactive customer support, and create B2B and B2C e-commerce marketplaces.

According to Gartner, traditional companies must acquire dot-coms over the next 12 months, because after that a market correction will occur in dot-com valuations that will cause hybrid or brick-and-mortar valuations to converge with those of dot-coms. The equities market in B2C dot-coms will stabilize and increase beyond 12 months as investments flow in from traditional enterprises.

"Traditional enterprises, especially in the B2C sector, must grab their partners very soon," said Al Case, Gartner's group vice president, e-business services. "Without backing from a solid traditional enterprise, dot-coms will be the Wall Street wallflowers. The valuations will have a solid track back to the actual business." According to Case, "Investing in dot-coms, rather than continuing to build infrastructure, could have a positive impact on both dot-com and traditional company earnings."

"Wall Street is finally realizing that companies must use technology to build better businesses," Said Michael Fleisher, president and CEO of Gartner. "The days of investments in cool Internet sites with thin business strategies are over."

Dot-coms that will survive have particular value to hybrid business strategies such as marketplaces, auctions, buyer aggregators and Internet malls. Those companies will become increasingly valuable even as the B2C dot-com market corrects. As traditional companies replace venture capitalists as investors in dot-coms as they "buy vs. build" on the Internet, venture capital will be freed up for stand-alone dot-coms that have solid traditional business value.

For more information on winning e-business strategies, visit Gartner's E-Business Resource Center at www.gartner.com/ebusiness.

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