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PIPEDREAMS: End of the beginning

PIPEDREAMS: End of the beginning

Despite the recent flurry of dot-com failures, the Internet will continue to develop and transform the way business is done. The Internet revolution has only just begun and this shakeout is simply a collection of bad ideas, bad businesses, greed and stupidity passing through the system. Any new industry goes through a turbulent period, and with hindsight we now understand a little more about what makes a good business model.

Many dot-coms failed because they ran out of money. They were lured into a false sense of security by venture capitalists and investors who told them there was plenty more available, spend as quickly as you can. When investors' sentiments changed, the dot-coms were too far gone to be saved. Whether they had a good idea or not, many businesses were sunk by the greed and hubris of investors who thought the boom would never end. They should have known better.

In any industry there's a constant coming and going of organisations, and many flounder in their first few years. Sure, we've seen a lot of failures in the past three months, but the dot-com "meltdown" (a favourite term of the media, adding drama to an event many insiders call a "correction") corresponds with the massive influx of start-ups a few years ago.

The number of companies leaving the industry will slow now, and those still in business have a good chance of surviving. Since there are now fewer players, and new companies entering the industry will be better considered, we'll see a much lower level of industry churn. I believe the meltdown is over.

Indeed, many sectors of the industry have a promising future. E-tailing, for example, is on the up and up. It now accounts for 1.5 per cent of all retail consumer spending in Australia, a 300 per cent increase over the past year. Online shopping over Christmas was estimated to be worth $300 million, double last year's holiday period.

One of the reasons for industry gloom is the unrealised expectations of many investors. A lot of people thought they would be stinking rich by now. They looked at their options and the stock prices and started to spend the money - in their heads, if not real life. Of course they feel gloomy.

There are a lot of companies, including HotHouse, that always expected to build a solid and viable business over a period of time. We've been building our business for five years and have increased turnover and profit every year. We're not gloomy about the future at all.

The most positive aspect of this shakeout is that it has made us all more focused and businesslike. Some of the fun has gone, but for those people with good skills and the right attitude, it's still a great industry to be in.

I read a story a while ago that questioned whether it was the end of the industry; it concluded that it was just the end of the beginning. I think this is true - and that's quite exciting for those of us with strong and solid businesses.

Photograph: Simon van Wyk, managing director of HotHouse Interactive


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