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
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
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 firstname.lastname@example.org
and is offering her corporate logo cheese molds for cheap.