Dot-coms Undergo Paradigm Shift

SINGAPORE (05/10/2000) - The dot-com fever has finally broken, with both analysts and venture capitalists (VCs) predicting a major shakeout in this market which will see rapid consolidation, and the emergence of traditional brick-and-mortar companies looking to initiate dot-com projects of their own.

There will likely be fewer "pure startups" springing up in the market, according to Ernest Eu, CEO of X-Media Communications Pte. Ltd.

Instead, there will be more brick-and-mortar companies looking to start up separate divisions, which they may spin off eventually, to focus solely on their e-business strategy, Eu said. He noted that not only are these companies "smarter now", and are beginning to understand the Internet game, they also have the capital to sustain a startup of their own.

About 95 to 98 percent of dot-coms today will fail in the next 24 months, and "very few will exist in the form they exist today", predicted Michael Fleisher, president and CEO, GartnerGroup Inc.

The industry will see a trend where there will be mergers and consolidation among the dot-coms themselves, Fleisher said, noting that several dot-coms today are around because the recent market hype had helped bring down barriers to entry, making access to capital very easy for these startups.

There was initially a lot of hype, and a mad rush of people wanting to start companies "on the fly", said Nikunj Jinsi, managing director, AsiaTech Ventures. However, the dust has somewhat settled, and coupled with the recent volatile showing on Nasdaq, the industry is now looking at companies that have long-term, sustainable business models, and that are focused on generating revenues, Jinsi said.

Fleisher echoed Eu's view that brick-and-mortar companies will move into e-business themselves or look towards starting dot-coms of their own. Fleisher added that these firms also have the option of buying up existing dot-coms.

"A hybrid business model is the right model," he said. There will either be a "rapid consolidation" among dot-coms themselves, or mergers of brick-and-mortar companies with the dot-coms, he added.

Brick-and-mortar companies will have to understand that they will have to do whatever it takes to be quicker to market, and that e-business is the way to do it, he said. To do so, they have two choices -- do it themselves, or buy up companies to help them do that, he suggested.

Establishing alliances is also another option, he said, but cautioned that because e-businesses will typically involve direct contact with the customers, companies need to be careful when choosing the right partner.

The new hybrid of click-and-mortar companies will also help push the evolution of VCs where companies such as X-Media and AsiaTech, then need to look beyond simply providing seed money.

"I see the playing field changing, where solution provision and consultancy services will be the key," Eu said. "Funding is not their biggest issue, so our opportunity will be to provide value-added services to these brick-and-mortar companies."

"The best VCs have always done that (providing consultancy services), and that's hard to do because it's time-consuming," said Fleisher, who predicted that "there's going to be a shakeout among VCs too" because not many are good at doing that.

"It's harder to build a business than invest in one," he said.

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