/ 31 December 2000

Will dot-coms hit the wall in 2001?

OWN CORRESPONDENT, San Francisco | Sunday

WHEN analysts and other observers of the Internet industry look ahead to 2001, they see nothing but pain.

And like a canary in a coal mine, San Francisco, the epicentre of the Internet boom, is starting to show real signs that the dot-com craze is running out of air.

Michael Wolff, a magazine columnist and former Internet entrepreneur who penned the scathing “Burn Rate” expose of dot-com financing, believes there won’t be an Internet industry by the end of 2001.

“One of the fallacies of the dot-com sector is that Internet businesses were different from all other businesses,” said Wolff. “These companies convinced investors there was value in that difference.”

These new companies sold themselves on the idea that long-time rules of economics had been replaced by new economic laws created by the Internet, a concept summed up in the “10 principles” of the new economy laid out by Business 2.0, a pro-Internet business magazine.

Analysts’ forecasts that Internet companies would hit $108bn by 2003 were quickly met when Wal-Mart, the US retail giant sold $130bn worth of goods in 1999.

But analysts’ figures that US retail sales would top $1.8 trillion left dot-com investors undeterred that a relatively small share of retail buying looked set to be performed on line.

At the start of January 1999, Amazon.com, considered the most successful of the Internet-only retail companies, had a market capitalisation value of $22.1bn, with investors putting $72 into Amazon for every dollar worth of books it sold.

But then came 2000.

Internet companies could not generate the revenues needed to reimburse investors, who declined to put up more money.

Internet companies began to fold, with 496 dot-com companies floundering since December 1999, ejecting 41 515 people from their jobs, according to widely quoted numbers from Chicago-based Challenger, Gray & Christmas Inc.

As the new year begins, observers believe there will be a continued shakeout.

“We see nothing that will offset this trend for 2001,” said CCG founder John Challenger. “In fact, we believe this trend will accelerate in 2001.”

Seattle-based Amazon now has a market value of $6.19bn. Its shares, once trading at 91.50, bottomed out at 14.87 on December 21.

Wolff and other analysts say Amazon could teeter into the $1bn market value range, setting it up for a take-over by a more established, non-Internet centric retail chain.

“Amazon’s sale is going to be a symbol of the dot-com world’s final demise,” said Wolff.

It’s a prediction shared by Ross Rubin, a Chief Research Fellow at Jupiter Media Metrix, another high technology market research firm.

“As Amazon goes, so does the rest of the sector,” said Rubin. “And Amazon could very easily go in 2001.”

And San Francisco, considered the home of the dot-com boom, is set to take a hammering.

Last year, the city’s 1048 Internet companies created revenues of nearly $5.7bn, generating a $2bn payroll for some 40000 employees, according to the San Francisco Partnership, a local business trade organisation.

By comparison, the city’s retail sector generated $5.4bn in revenues in 1999.

Now, the city is littered with billboards and street signs from closed dot-com companies like Productopia and Pets.com. “Craig’s List”, a popular online source for city housing and dot-com jobs, is seeing a rise in apartment vacancies and a drop in online help-wanted ads.

“We are seeing some dangerous dips,” said Craig Newmark, the former computer programmer who runs Craig’s List. “People are worried.” – AFP

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