E-comm leap of faith onto the rocks

You know what disappoints me about the recent flameouts among the dotcoms? Not that it's happening - everyone knew it was coming. Having dotcom as part of your company name is practically an advertisement that you plan to live fast and die young.

No, it's the banality of the failures. They're not dying in horrible economic cataclysms or being crushed by deep-pocketed bricks-and-mortar rivals or hacked out of existence by maniac crackers bent on destroying capitalism on the Web. They're just running out of money. And customers.

Sure, that happens to normal companies. That's corporate evolution, right? Survival of the fittest.

But the dotcoms weren't normal companies in any sense. From the beginning, they were Something Different.

They broke all the rules. They had more cash than they had any right to have. Their stock prices were stratospheric, based more on faith than analysis. They took over Wall Street and turned it into a yo-yo. They made a lot of people rich.

They defied the laws of physics.

They defied Alan Greenspan.

They were superstars.

They should have died like those movie stars of the 50s: foot on the gas pedal, wind in their hair, daring Deadman's Curve to live up to its name. Not like Elvis, in a lonely bathroom with their pants around their ankles.

But that's what's happening. Glamorous companies are going down the tube for reasons that they were supposed to have overcome while inventing the New Economy.

Toysmart.com CEO David Lord tells a dramatic story about trying to pull his company back from the brink. After hitting a low point, he and his top execs worked around the clock to hammer out a new business plan that would convince majority partner Walt Disney that they were still on the road to success. They celebrated the brilliant solution the night before the presentation. In the same meeting that they presented the plan, Disney shut them down.

Time, Lord says, was a problem. Lack of faith from Disney, he says, was a problem. A culture clash with Disney, he says, was a problem.

But ultimately, he says, the problem was that Toysmart couldn't attract enough customers.

That's not a New Economy kind of excuse. In the New Economy, smart companies are supposed to succeed anyway.

But even smart New Economy companies are failing. A study from Chicago outplacement company Challenger, Gray & Christmas found that almost 5400 employees from 59 Internet companies have been laid off since January. Toysmart is gone. Boo.com is gone. New Economy pioneer CDnow is trying to sell out but can't find a buyer. Even Amazon.com is coming under fire.

E-commerce isn't easy. Even traditional companies with existing bases of customers to exploit have trouble making it work.

Online, historical return-on-investment criteria don't work, so developing e-commerce projects have to be funded as a leap of faith - more on an R&D basis than a traditional commercial one, according to Kathy Brittain White, CIO at $US26 billion Cardinal Health Care. And companies with real-world revenue streams can afford to keep that up longer than start-ups.

But there's a limit even to leaps of faith. Among the dotcoms, it was an article of faith that the old rules of business no longer applied.

Some of the old rules, maybe, but not all. If you're smart enough, agile enough and offer enough value to customers, you can build a customer base from nothing.

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