The Short Story Of the Web's Generation Ex
By Leslie Walker
What hit me were the babies.
I've been digging in the dot-com graveyard for clues to the cause of death of more than 200 Internet companies. It's not easy to identify the dead. You almost need a PhD in Internet forensics to tell what Web sites once were, because so many organs have been harvested by survivors. But if you keep digging, the trail leads to the youngest dot-coms and the usual suspects that kill companies: greed, poor judgment, rotten luck.
The graves can be confusing. The late drugstore More.com, for instance, now "points" its Web address to WebRx.com, a former competitor that is itself on life support. Jewelry.com ushers visitors to Zales.com, while Textbooks.com redirects people to Barnesandnoble.com. Both once housed Web start-ups that sold their own goods.
Even with the tricky trails and sad suicide notes posted at abandoned home pages, it’s easy to spot the infants, remnants of Web ventures that lived barely a year. Some never left the womb, like Steven Spielberg’s Pop.com, which fizzled on the even of launch. Others debuted late, like fashion site Boo.com. It went online a good six months after its multimillion-dollar marketing campaign, then went bankrupt five months later.
Here and there, a bona fide Web pioneer expired. Garden.com, HotOffice and Pseudo Programs all launched in the mid-1990s, when it still took chutzpah and vision to create Web sites. HotOffice won awards for its Web-based business software;Garden.com was projecting profitability sometime next year; Pseudo spawned copycats of its live Web video shows. All three died without being able to find merger partners.
But the vast majority were not pioneers at all. They were hasty entrants in the Internet gold rush of 1999. My review of the not-so-dearly departed suggests that most went online between late 1998 and early 2000, putting them in the position of needing sizable cash infusions when the Nasdaq stock market plunged last April. Many managed their cash so poorly that death was swift. Still more are virtually brain-dead, maintaining static Web sites while seeking buyers for their assets.
California-based Webmergers.com reports that 210 “substantial” Internet ventures folded last year, with the pace accelerating to 86 shutdowns in November and December. Another outfit tracking layoffs—job placement firm Challenger, Gray & Christmas – tallied 41,515 job losses at 496 Internet companies last year.
Nobody knows how bad this will get, but the funerals could drag on for years. While estimates vary widely, the Internet industry employs perhaps a half-million people or more. It could be as high as 2.4 million if you count Internet works at old-line companies and giant software makers, according to a study from the
Keep in mind the industry includes thousands of start-ups. Survivors still outnumber the dead by greater than 10 to 1 – but that ratio could well reverse itself before the shakeout ends.
It’s neither surprising nor tragic that the infants died first. But so many passed away that the list of names is already mind-numbing: Eve.com. Pets.com. Furniture.com. Scour.com. BigWords.com. Mortgage.com. QuePasa.com. Foodline.com. IBelieve.com. Few lived long enough to sell stock to the public, though analysts expect many more of the 300-plus publicly traded consumer Internet companies will fold or be acquired this year.
The causes of death were many. First came greed, the lure of fast bucks spawning many me-too companies that are still going toes-up. Retail was the sector hardest hit, with online entertainment close behind. Web-based video is still far ahead of its time, with only a tiny audience having fast enough connections to tolerate watching video from desktops.
Poor timing played a role in other sectors, too. Many companies seriously misjudged Internet markets, expecting them to develop much faster than they did. Perhaps with more cash and another two years, companies such as eToys might still come within striking distance of profitability. But eToys emitted what sounded like a death rattle last week, slashing 70 percent of its workforce after disappointing holiday sales.
There was an element of rotten luck, too. More than a few of companies with decent ideas happened to be on the verge of additional private funding or public stock offerings when the Nasdaq dropped, drying up cash sources almost overnight. Smart companies moved fast to seek new revenue sources. Scores abandoned their strategies of selling directly to consumers and began offering licenses for their technology to established companies.
Webmergers found three out of four failed dot-coms catered to consumers, not businesses. About half were in electronic commerce. The firm recently started an online clearinghouse for ailing Internet companies to list assets for sale. (Dumbest property in inventory: CapturedHearts.com, a Web site for prison pen pals. The owners want $40,000 for the right to hook you up with prison inmates. No lie.)
Though they drew less publicity, many substantial Internet start-ups saved their financial skins last year by selling or merging before their cash ran dry. Five times as many dot-coms “made it to the altar as they did to the mortuary,” Webmergers found, with $87 billion spent on 910 acquisitions last year. A few flamed out shortly after buying at fire sales – notably Pets.com, which closed six months after buying assets from defunct Petsmart.com.
You might be wondering what will be left on the commercial Internet after all the dying is done, besides the troika of America Online, eBay and Yahoo.
In reality, thousands of commercial Web sites remain alive, offering hundreds of times more content and services than what the great wipeout has destroyed. Indeed, far too many players are still slugging it out in most sectors. Travel and financial services are among the hardiest sectors. Each currently supports dozens of large, successful businesses that are either profitable or on the verge of being so, along with hundreds of smaller ones.
It is still too early to draw conclusions about Internet survivors. But one thing I firmly believe will persist: the new behaviors that many of the dying dot-coms ushered into our lives. I am steeling myself to the idea that my favorite hangouts could become Internet ghosts.
So what if CDNow is not always the place where I listen to new tunes before buying the CDs. And I could get used to buying used books from a Web site other than Half.com. It’s more than possible that Microsoft’s Expedia will not always be my travel agent.
I believe I will still be able to do all of these things online no matter which companies provide the service. They are just a few of the many Web services that have grown too ingrained in many people’s lives to think some corporation won’t find a way to profit from them eventually.
(Accompanied in print by a large “Dot Com Gravyeard” graphic summarizing the business models of dozens of failed Internet companies.)