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Tracey E.Schelmetic

Dot Com Commerce

Managing Editor, CUSTOMER [email protected] Solutions

[July 11, 2001]

Conventional Wisdom Alert: Don't Buy A Company's Stock If You Wouldn't Buy Its Products

The recent demise of Webvan surprised no one, as the company had been warning the public for months that it didn't expect it would be able to keep up with operations for much longer. Even many of today's self-professed (and somewhat lame-brained, if you ask me, but you didn't) "industry analysts" could have informed you that when a company loses hundreds of millions of dollars, it's not a very positive sign. In the same vein, a 7-year-old could have told you that when you don't sell anything, you're not likely to make money, unless you have a secret gambling racket going on in the basement. My niece's hamster probably understands that when no one wants to buy the products a company offers, you shouldn't invest in that company. So why did so many people throw whopping piles of cash into Webvan in the first place?

Your guess is as good as mine, but Webvan certainly wasn't the only one.

Webvan's final press release, issued by its CEO Robert Swan, indicated that the company's death was preceded by operations at "high losses and decreasing cash." That's enough to bankrupt a company? Really? Who woulda thunk?

Another recent player that appears to be in its death throes is the formerly hyped eYada.com, which this week announced that it's not feeling well and is not expecting to recover. eYada.com, which professed to be the leading talk radio network on the Internet, was receiving chunks of venture capital as large as $25 million a clip just last year. Investors had included Time Warner, Chase Capital Entertainment and Credit Suisse First Boston. In other words, the investing parties were comprised of individuals who probably listen to National Public Radio in the morningpeople who would rather have their Mercedes' pushed off steep, rocky cliffs than tune in over the Internet to listen to two dopey talk show hosts interview former Sex Pistols member Johnny Rotten.

How about the people that threw cash into a company that didn't even have a product? Remember theoretical optical networking firm Corvis from last year? A company with no history, no income and as of yet, no product, had its IPO in July of last year and sold more than $1 billion worth of stock.

Reduced To A Trickle?
Webmergers, a group that provides research and services for buyers and sellers of Internet and technology properties, claims they have noticed a slowdown of dot com bankruptcies thus far this year. As of June 2001, Webmergers reports it has observed a minor slowdown in the monthly tally of Internet businesses shutting their virtual doors due to Chapter 11 bedtime stories. This could be a fluke, or it could be an indication that the lion that is the economy of the last two years is close to finishing culling the herd.

The truth of the matter, I think, is much muddier than most of the media lets on. Gleefully sounding the death-knell for Web companies is much more fun. Let's face itthere's really no such thing as a "dot com company" anymore. Every company that does business is, in part, a Web venture. Name me a major retailer that doesn't have an Internet channel. Go ongive it a try. There aren't any. What we are seeing the death of is a multitude of companies that were confident that the thing to do was to exist ONLY on the Internet, and believed that having a dot com on the end of your company name guaranteed success, even if you were trying to sell something that no one really wanted to buy. The strategy worked, for a whileventure capitalists and stock buyers bought into the scheme lock, stock and barrel. You're launching www.NudePhotosOfZZTop.com? Bring it on! A new site called www.UsedHankiesForLess.com? Here's $10 millionit can't fail! In truth, Forrester Research reports that though dot-com retailers crashed in Europe last year, just as in the U.S., online retail sales nearly tripled. Doesn't seem to make sense, does it?

Yes, it does. Dot com business models may be dead, but purchasing goods and services over the Internet most definitely isn't. It's merely a shame that a most beloved and convenient method for shopping was associated with such a fatally flawed business plan.

I'll Sue You!
It was only a matter of time. The favorite pastime of the wealthy American populace, litigation, was bound to rear its pointy little head sooner or later. We may discuss the dot com bust in sniggering tones, but the truth is an awful lot of people lost a great deal of money. Class-action lawyers are now in hot pursuit of investment banking firms the lawyers and their clients allege made the mass hysteria possible. The ultimate goal, presumably, being to get investors' money back. Apparently, admitting that large quantities of people went mad with money lust and bought into companies that upon close examination, would have yielded the fact that they had no product, and, more importantly, no clue, is too humiliating.

I liken it to the boys that, due to the inspiration of MTV's Jackass show, climbed onto the family's backyard barbecue with no protective clothing and whose parents are now suing MTV for failing to run the warning, "If your child is dumber than toast, please don't let him watch this show." Perhaps MTV should start a parallel show called Dumbass and feature now-poor dot com investors. It could go something like this:

Bob The Investor: "Hello, my name is Bob and I bought 1,000 shares of StencilYourLawnmower.com when they went IPO. When the company went bust, I lost a million dollars! I think it's the bank's fault/the analyst's fault/the company's fault/the news media's fault/my broker's fault for hyping the company, and I want my money back!"

Moderator: "Bob, did you ever think it had anything to do with the fact that most people really didn't want to buy a kit over the Internet that would let them decoratively stencil their lawnmowers?"

Bob: "What does that matter? Their stock was HOT!"

Moderator: "Congratulations, Bob, you're this week's Dumbass!"

The author may be contacted at tschelmetic@tmcnet.com and is offering her corporate logo cheese molds for cheap.

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