January 1, 2001

I have been watching and reading the coverage of "The Dot.Com failure" story for months... Every traditional news source is crying dot.coms are failing... the Internet economy is in trouble. The clarion call is going out like chicken little, "The Internet sky is falling!"

These reports of doom are not being balanced with other key stories such as: "Internet holidays sales this year will be around 10 billion; which is more than double what it was last year at 4.7 billion." I guess expectations were set so high that a100% grow is not a good story? At the same time as this phenomenal grow, VC funding of dot.coms has dropped by at least 300% Why is the funding drying up now?

Traditional news sources are not reporting the dot.com story in full. Yes, dot.coms are failing at a startling rate. The percentage of dot.com failure is far higher than the historic failure rate for new business in general, however the failure rate is very similar to the BioTech bubble of the 1980's.... The reality behind the hype is that anyone who examined the business plans or balance sheets for most of these dot.coms could not have expected anything but failure.

The story behind the story is how clever the Venture Capital market has been... Why were VCs pumping money into businesses with almost zero hope of success? The answer is they were gambling and most won. The story line should be: "Internet gold rush cashes out."

The simple fact is that the majority of these failing dot.com businesses should never have existed in the first place. Were it not for questionable tactics, these businesses would never have gotten off the ground. These businesses were created for the sole purpose of overly hyping a business concept of questionable viability; then, cashing out while the stock price soared during its IPO... and sticking it to the unknowing folks who bought into the hype. The term for this activity is "flipping a business." The biggest losers are the millions of small investors who piled onto these IPOs. The Original Investors got richer on the blood of the uneducated investors and all the employees of those failing dot.coms who's jobs are disappearing and stock options evaporating.... and worse, many viable dot.coms are getting sucked under with the bad. From my perspective this is as big a scandal as junk bonds or the S&L bail out. But the truth is, many of those dot.coms were businesses who, without their dot, would not have been considered sound or worthy of investment.

I-Commerce is my industry. The success rate of existing businesses adding i-commerce is that over 95% achieve profitability from this added revenue stream. What this translates to is... that if you know your business, you will succeed on the Internet. If you do not know your business, you will fail. This is not rocket science or obscure statistics. This is basic business sense which seems to have been lost in the Internet VC Gold Rush.

This dot.com story needs to be put into perspective before damage is done to the best and brightest part of our economy, the technology sector....

Have a very happy and profitable 2001...

Kevin Bohacz,
President of C:> Prompt

Here's some more statistics showing what a great year 2000 was for i-commerce...

• The percentage of Internet users who say they will not purchase holiday gifts on the web this year dropped from 33 percent in 1999 to 13 percent in 2000.
• All indications from marketing research firms is that i-commerce annual sales will have grown by at least 62% from 1999 to 2000.
• For the first 11 months of 2000, on-line sales totaled 42 billion (source Forrester)
• Forrester is predicting 6.8 trillion in sales by 2004 (which is both optimistic and fascinating).

Other Articles from "The Politics of Internet Commerce" series

• Obstacles to being a successful on-line business - July  2000
• Risks of Internet Commerce - December 1996