HTMLGOODIES EXPRESS ™
June 26, 2000– Newsletter #86

Greetings, Weekend Silicon Warriors,

I am still on vacation, so the timeliness of this newsletter may be a bit off. My apologies up front for anything I write that, in retrospect, sound a little silly. I am writing this newsletter on June 4th. If I’m reading my calendar into the future correctly, I am in Venice, Italy right now. This is my second time to Venice. Let me tell you, even though the city is a bit overrun with tourists (like me), it’s everything you’d expect it to be. Go when you get the chance.

Now onto today’s topic

You mean we have to make a profit???

It was bound to happen, but no one talked much about it. Have you noticed all the stories lately about dot-coms having to close their cyber-doors? The list is getting a little too long to be comfortable: Boo.com, DEN.com, FooFoo.com, Violet.com, ToySmart.com, CraftShop.com.

Many online companies are taking steps to not make the list, DrKoop.com is concerned, CDNow.com is making changes, and Living.com has drastically cut employees by almost 50 percent. Reports are that bankruptcy law firms are brushing up on how to handle Chapter11 dot com.

What is happening? Is the Web dying?

No, of course not. The Web is as strong as ever, it’s just that reality has finally made it way to the world of the Internet. When all is said and done, a company must make a profit to stay afloat. Investors who give money to a business want to see a return. There are very few people that will give a Web site money simply out of the kindness of their heart. They want to get a profit in return.

There was a time, oh so long ago, when companies could go online with millions in financial backing, never make a profit, go against every law of economics and undertake an IPO, sell tons of stock that is way overvalued, and float along on a sea of, we’ll make a profit soon.

We have apparently hit the end of the money first put into these cyber-businesses. In almost every story, I see the same general phrases. The company is asking for more capital or is looking for a new investor. In some cases, those who did invest are looking to sell the site to another investor. The cash has run out and now the scramble to find more is spelling out the end of many of these online businesses.

Is this a bad thing? I guess it depends on whom you ask. I don’t know that it is such a bad thing. A company has to make more than it spends simply in order to make new product and pay employees. That just seems like basic common sense to me.

Those companies that cannot make a profit will fall by the wayside. The customers that used that business will have to look elsewhere for a site to buy their goods and services. That means the online audience may not be cut into such small slices. More customers to less businesses means, maybe, now online businesses will start to make a honest-to-goodness profit.

I know that last line really upsets a lot of people. Some say the Web should be a place where even the smallest of business can compete against the largest on a level playing field. The Web should be a place where the consumer has a great many choices and competition keeps prices down.

That seems like it should work, but it obviously doesn’t. Market forces are starting to filter out the sites people are not overly eager to visit. Should we make a point of keeping those lesser sites up and running just because the Web should be a place of unlimited choices?

Yes? Well, then those businesses would like you to stop by. Bring your checkbook. Many of the failing companies are asking for funds into the millions.

A report on ZDNet.com suggests that investing on the Internet is not dead by any means. The money is just not going where it used to go. Investors are looking to put their money into Internet infrastructure, particularly for backbone and improvements in quality of service; and for services, such as direct marketing, advertising, application and database development and consulting.

Can you see the parallel? The businesses that are having financial trouble are storefronts. They are the online businesses that sell to people like you and me. Investors apparently feel they have put enough cash into the cyber-mall and now see profit over the hill in infrastructure and marketing above the consumer level.

Maybe you’ve heard the old adage that only one out of every ten businesses makes it. Well, up to this point, the Web has been an everybody wins a trophy day market for businesses. Profit was secondary, just getting on the Web was what was important. Consumers possessed tons of disposable income and they were spending it like water.

Well, the Fed has slowed the economy, the stock market is starting to trade in real-time reality, and true market forces are taking over. Make a profit or go by the wayside.

I see a slew of servers closing their doors fairly soon. I don’t just mean little Mom and Pop stores either. I could easily see some major names calling it quits. Those sites that consumers like most will be visited most and will succeed. Those sites that don’t quite trip the consumer’s trigger will have to change, find new investors, or say good-bye.

>>>>>>>>>>>>>>>>>

That’s that. Thanks for reading.

Joe Burns, Ph.D.

And Remember: I heard a man on ESPN going on and on about how he dislikes the fact that money has taken over sports. He said that lately everything is either named for or branded by cash. Sorry to say, but it isn’t lately. In fact, did you know that the San Diego Chargers were not named for charging forward or electricity? The original owner of the team, Baron Hilton, owned the Carte Blanche credit card company. When these football players charged, they really charged.