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Well folks, it looks like it’s time to head for land, because the bon
voyage party is long over and we’re running out of dot-com vessels that
will reach their intended destinations. Last June, I wrote about the tremors
in dot-com nation as the stock market turned sour, with analysts predicting
a 95-percent dot-com failure rate. Unfortunately, as this year is about
to end, dot-com boats are fighting ever-turbulent seas and a pink-slip
storm that will, in fact, wreck many of them. Increasingly, we encounter
a lonely Web page declaring yet another closing down of shop—another dot-com
dream gone under. And, I predict, this will be common in 2001.
How Big a Tumble?
Let’s get some perspective on the situation. According to the Dot-Com
Layoff Tracker maintained by The Industry Standard (http://www.thestandard.com),
as of November 9, there were 245 dot-coms that had laid off at least 22,155
employees. This is a good amount, but in this robust economy people made
an easy transition to another dot-com or found work in other environments.
According to a study released in June by the University of Texas at Austin’s Center for Research in Electronic Commerce (http://cism.bus.utexas.edu), the number of people employed in the total Internet workforce had grown to 2.5 million in 1999. So, although the number of people who have been laid off represents only a small part of the overall industry, it’s also true that a ripple effect is likely if the dot-com sector shrinks.
Layoffs from dot-coms in retrenchment are just one indicator that businesses
are running on money fumes. Many companies, including New York Times Digital
(NYTD), have withdrawn their SEC (Securities and Exchange Commission) applications
to take their companies public, fearing that the IPOs would take a battering.
Bankruptcies and closures are increasing. Kibu.com, Eve.com, and Solutions
Media (among others) all shut their virtual doors in October. Industry
analysts are predicting that these closures and bankruptcy filings will
accelerate in the first and second quarter of 2001. Even DeepCanyon, the
Web-based provider of high-quality market intelligence launched by Hewlett-Packard
in September 1999, has already closed up shop.
Fewer Survival Strategies
Of course, one reason that dot-coms are rethinking their strategies
is that they simply have less money to spend. David Hodess, president of
Cooking.com, said that his company is chopping its advertising spending
in half in the fourth quarter of this year. “People are scrutinizing their
spending across every area, but certainly in marketing.” And this retreat
from traditional (now referred to as off-line) advertising will naturally
have a financial impact on major media organizations that are themselves
parent dot-com companies.
Last year, it seemed that the dot-coms had acquired every available second of prime TV airtime and had filled them with high-profile, razzly-dazzly, and occasionally incomprehensible advertising. This certainly won’t be the case this year as many dot-coms have fled for less-expensive venues. Advertisements from the dot-com industry will also shrink because big dot-coms have swallowed up their little competitors. This reflects the new thinking currently framed around marketing friendships, such as the highly publicized alliance of former rivals Amazon.com and Toys R Us, Inc. As fewer and fewer dot-coms remain, the survivors don’t have to compete as fiercely in off-line media for consumers who wish to purchase dog food online.
One new survival strategy being embraced is the belief that the customers most likely to shop online are already, in fact, online. As such, some dot-coms are turning away from traditional off-line media for an exclusive, or near-exclusive, online campaign. Such an approach would appear to fly in the face of Web-convention regarding the efficacy of online advertising. drugstore.com, for example, is not scheduling any television ads but instead is focusing an online effort to highlight its marketing alliances (also) with Amazon.com.
Other dot-coms are taking a nostalgic approach by embracing the “everything-old-is-new-again”
theory. Billboards have become popular, as has the distribution of toys
and trinkets. I recently attended the Head of the Charles Regatta (the
annual 2-day rowing race held in Boston), but I could have been attending
an Internet convention for all the imprinted gewgaws that were being doled
out to the masses. One savvy company even distributed bags so that attendees
to this most unwired of events could tote home their wired booty of inflatable
balls, tiny cars, and water bottles. And if that wasn’t enough, I counted
at least 10 small planes circling overhead dragging dot-com advertising
banners. This is quite the wired transition for an event better known for
giving out samples of “power bars” and a lone plane flying an advertisement
for a bank or perhaps milk.
Will Santa Deliver?
Clearly this holiday season will be the last, great gasp for many of
the dot-coms that are hoping Santa will deliver a gift-wrapped solution
to their problems. (Hey, why not? If some of these dot-coms believed in
their business plans, then a belief in a Santa-based solution is not too
far a reach.) Dot-com content providers are also feeling the virtual pinch.
As the dot-commers regroup and shrink, it’s expected to impact content
providers’ fortunes.
Even the standard-bearers like New York Times Digital, which includes boston.com and abuzz.com and has one of the highest content revenue streams, still has operating expenses that exceed its income. However, this hasn’t deterred Martin A. Nisenholtz, NYTD’s chief executive, who told Inside.com on October 15 that the market had gone from “irrational exuberance to unqualified pessimism.” According to Nisenholtz: “In order to be an unqualified pessimist, you basically have to believe that there is no future in strong intermediary positions between the marketing community and the consumer. And I just don’t believe that. I believe that large, highly branded franchises with excellent business models underneath them will prevail.”
If anyone is going to survive, they’ll need to have rich and famous parents because Santa won’t be delivering holiday goodies to upstart orphans this year. Web-content orphans, such as a dozen or so stand-alone political-content sites started this year—like SpeakOut.com and election.com—are going to be left with nothing under the Christmas tree because news sites like CNN.com are essentially duplicating their efforts (and usually doing it better). Moreover, analysts at Media Metrix (http://www.mediametrix.com) have determined that there’s only marginal interest in political Web sites. So it’ll be surprising if any of these upstarts is around next year, or even in the next election cycle. (And, since we’re on the subject, how did these Web sites hope to support themselves between elections anyway?)
Okay, there was something about the “let’s-get-rich-quick” Internet
that caused us to suspend our common sense and forget what we already knew.
(Oh yeah, buying dog food is a big problem for people. Let’s set up eight
dot-coms so that people can order dog food online and have it delivered
by UPS. Wow, totally brilliant!) Some bad decisions were made, resulting
in too many dot-coms and too many that lived high on the virtual hog. 2000
will be the year that the Web’s golden (and crazy) era ended. 2001 will
be the year that we get our collective sanity back.
Robin Peek is associate professor at the Graduate School of Library
and Information Science at Simmons College. Her e-mail address is robin.peek@simmons.edu.
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