E-COMMERCE CLINIC: Scrambling from the wreckage
- 08 November, 2000 16:21
I've lost a lot amount of money this year. I do get some comfort in the knowledge that I'm not alone, but it still hurts to look at my bank balance. Although many analysts were predicting the fallout of tech stocks early this year and conservative investors warned of getting into "risky" shares, the promise of huge returns was too much for some investors.
The "new economy" formed from new companies without traditional business acumen or positive profits. They were popular to the "high-risk" stakeholder because they sold a vision into the future. Their share prices sky rocketed due to the great demand of their stocks. The problem that may have been foreseen by a few, but not many, was that these companies did not have a positive cash flow. Their prophesised success was based purely on just that - a prophecy that the tech industry will explode. The industry will explode and is doing so as we speak. However, we do not know which of the small fish will survive. Naturally speaking, the small fish will be gobbled up by the big fish. Who the big fish will be and who the little fish are still remain partially unknown.
There were and still are many factors contributing to the fall of tech companies over the last year. I'd like to raise a few of them with you.
The advertising factor
Relying on advertising to fund your business doesn't pay. The one-time high-flying dot-coms in Australia like Spike and LibertyOne have learnt this lesson the hard way. These companies had a business model reliant on aggregating "eyeballs" or site visits to fund growth.
One of the reasons this model did not turn a profit was that mutual alliances and content swapping between online players gave the false impression that the market was swarming with activity. In reality, there was little money involved.
Who's at the helm?
After the fallout earlier in the year, board members of victim companies looked for scapegoats to appease investors. Top executives were fired and hired in an effort to make companies rebound. But making personnel moves to appease or reinterest anxious investors is no way to save a struggling company. It might buy time, but how long will it be before the honeymoon of the replacement CEO ends? Especially if the business model is flawed.
There may be times when a change is good, especially now that dot-com whiz kids are stepping aside to let someone with experience in negotiating the financial markets and business partnerships take over.
In some cases, CEOs can make a difference by being aggressive cost-cutters and reining in free spenders. But those changes occur at the margins, not in the meaty areas of failure and success, big profit or big losses.
Changed economic reality
The business utopia that many believed the Internet would be has yet to transpire. The new economy miscalculated how its influence would change the fabric of society. Experts promised a world where commercial relations would become uncomplicated. Buyers and sellers would see eye-to-eye as the Internet would level the information playing field and take the mystery out of pricing. As yet this reality has barely taken shape.
Whilst the technology industry continues to form and create its boundaries and limitations, we can only sit back and watch the formation of a new industry (a brave new world). Those who want to be a part of it directly will be both winners and losers. Those who are more conservative may lose out on opportunities now, however they will be able to make a more informative investment decision in a few years.
Amanda Mason is communications manager at Pure Commerce. Reach her at firstname.lastname@example.org