The Sinking of the Dot-Com Fleet.
The Web has had no neutral moments. In the beginning, it seemed that nearly everyone wanted to jump on a dot-com boat, no matter what the ticket price. Of course, the trick was to get on the right boat: the "get-rich-quick" one. There were lots of them from which to choose, from rickety rafts to ocean liners. And if your dot-coin boat sank, no problem, because it was easy to just jump on the next one passing by.
Well folks, it looks like it's time to head for land, because the bon voyage party is long over and we're running out of dot-com vessels that will reach their intended destinations. Last June, I wrote about the tremors in dot-com nation as the stock market turned sour, with analysts predicting a 95-percent dot-com failure rate. Unfortunately, as this year is about to end, dot-com boats are fighting ever-turbulent seas and a pink-slip storm that will, in fact, wreck many of them. Increasingly, we encounter a lonely Web page declaring yet another closing down of shop--another dot-com dream gone under. And, I predict, this will be common in 2001.
How Big a Tumble?
Let's get some perspective on the situation. According to the Dot-Com Layoff Tracker maintained by The Industry Standard (http://www.thestandard.com), as of November 9, there were 245 dot-coms that had laid off at least 22,155 employees. This is a good amount, but in this robust economy people made an easy transition to another dot-com or found work in other environments.
According to a study released in June by the University of Texas at Austin's Center for Research in Electronic Commerce (http://cisrn.bus.utexas.edu), the number of people employed in the total Internet workforce had grown to 2.5 million in 1999. So, although the number of people who have been laid off represents only a small part of the overall industry, it's also true that a ripple effect is likely if the dot-com sector shrinks.
Layoffs from dot-coms in retrenchment are just one indicator that businesses are running on money fumes. Many companies, including New York Times Digital (NYTD), have withdrawn their SEC (Securities and Exchange Commission) applications to take their companies public, fearing that the IPOs would take a battering. Bankruptcies and closures are increasing. Kibu.com, Eve.com, and Solutions Media (among others) all shut their virtual doors in October. Industry analysts are predicting that these closures and bankruptcy filings will accelerate in the first and second quarter of 2001. Even DeepCanyon, the Web-based provider of high-quality market intelligence launched by Hewlett-Packard in September 1999, has already closed up shop.
Fewer Survival Strategies
Of course, one reason that dot-coms are rethinking their strategies is that they simply have less money to spend. David Hodess, president of Cooking.com, said that his company is chopping its advertising spending in half in the fourth quarter of this year. "People are scrutinizing their spending across every area, but certainly in marketing." And this retreat from traditional (now referred to as off-line) advertising will naturally have a financial impact on major media organizations that are themselves parent dot-com companies.
Last year, it seemed that the dot-coms had acquired every available second of prime TV airtime and had filled them with high-profile, razzly-dazzly, and occasionally incomprehensible advertising. This certainly won't be the case this year as many dot-coms have fled for less-expensive venues. Advertisements from the dot-com industry will also shrink because big dot-coms have swallowed up their little competitors. This reflects the new thinking currently framed around marketing friendships, such as the highly publicized alliance of former rivals Amazon.com and Toys R Us, Inc. As fewer and fewer dot-coms remain, the survivors don't have to compete as fiercely in off-line media for consumers who wish to purchase dog food online.
One new survival strategy being embraced is the belief that the customers most likely to shop online are already, in fact, online. As such, some dot-coms are turning away from traditional off-line media for an exclusive, or near-exclusive, online campaign. Such an approach would appear to fly in the face of Web-convention regarding the efficacy of online advertising, drugstore.com, for example, is not scheduling any television ads but instead is focusing an online effort to highlight its marketing alliances (also) with Amazon.com.
Other dot-coms are taking a nostalgic approach by embracing the "everything-old-is-new-again" theory. Billboards have become popular, as has the distribution of toys and trinkets. I recently attended the Head of the Charles Regatta (the annual 2-day rowing race held in Boston), but I could have been attending an Internet convention for all the imprinted gewgaws that were being doled out to the masses. One savvy company even distributed bags so that attendees to this most unwired of events could tote home their wired booty of inflatable balls, tiny cars, and water bottles. And if that wasn't enough, I counted at least 10 small planes circling overhead dragging dot-com advertising banners. This is quite the wired transition for an event better known for giving out samples of "power bars" and a lone plane flying an advertisement for a bank or perhaps milk.
Will Santa Deliver?
Clearly this holiday season will be the last, great gasp for many of the dot-coms that are hoping Santa will deliver a gift-wrapped solution to their problems. (Hey, why not? If some of these dot-coms believed in their business plans, then a belief in a Santa-based solution is not too far a reach.) Dot-com content providers are also feeling the virtual pinch. As the dot-commers regroup and shrink, it's expected to impact content providers' fortunes.
Even the standard-bearers like New York Times Digital, which includes boston.com and abuzz.com and has one of the highest content revenue streams, still has operating expenses that exceed its income. However, this hasn't deterred Martin A. Nisenholtz, NYTD's chief executive, who told Inside .com on October 15 that the market had gone from "irrational exuberance to unqualified pessimism." According to Nisenholtz: "In order to be an unqualified pessimist, you basically have to believe that there is no future in strong intermediary positions between the marketing community and the consumer. And I just don't believe that. I believe that large, highly branded franchises with excellent business models underneath them will prevail."
If anyone is going to survive, they'll need to have rich and famous parents because Santa won't be delivering holiday goodies to upstart orphans this year. Web-content orphans, such as a dozen or so stand-alone political-content sites started this year--like SpeakOut.com and election.com--are going to be left with nothing under the Christmas tree because news sites like CNN.com are essentially duplicating their efforts (and usually doing it better). Moreover, analysts at Media Metrix (http://www.mediarnetrix.com) have determined that there's only marginal interest in political Web sites. So it'll be surprising if any of these upstarts is around next year, or even in the next election cycle. (And, since we're on the subject, how did these Web sites hope to support themselves between elections anyway?)
Okay, there was something about the "let's-get-rich-quick" Internet that caused us to suspend our common sense and forget what we already knew. (Oh yeah, buying dog food is a big problem for people. Let's set up eight dot-coms so that people can order dog food online and have it delivered by UPS. Wow, totally brilliant!) Some bad decisions were made, resulting in too many dot-coms and too many that lived high on the virtual hog. 2000 will be the year that the Web's golden (and crazy) era ended. 2001 will be the year that we get our collective sanity back.
Robin Peek is associate professor at the Graduate School of Library and Information Science at Simmons College.
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|Article Type:||Brief Article|
|Date:||Dec 1, 2000|
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