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| Many SMEs in the UK will have read the "success" stories of new start-up companies who, with little money but possibly an innovative idea, have launched a new Internet company. With significant support and backing from venture capitalists such companies saw values rise rapidly, on the expectation that anyone involved with such companies would gain financially. Basic business logic had just gone out of the window! |
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| Companies which were set up to use the Internet as their prime trading platform became known as 'dot.coms', an American term referring to the .com which usually comes at the end of a web site address. During 2000, newspapers and the television were flooded with dot.com start-up stories, with people scrabbling for finance, companies making and losing huge amounts of money and companies spending vast amounts of venture capital money on advertising in order to gain customers. |
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| Young people with little or no business experience, but with an interesting idea made possible by the existence of the Internet, dominated the dot.com world. Politicians and the media were claiming that this was the future for business and they encouraged more people to join the dot.com phenomenon. |
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| Many investors saw an opportunity to make money very fast and jumped on the bandwagon, buying up any new Internet stocks as they came on the market. These investors played their part in the dot.com phenomenon, pushing up the already unrealistic share prices to even greater heights. Normal investment criteria seemed to be put on hold and investors ploughed money into this sector partly through fear of missing out and partly through sheer greed, although few believed it could last. |
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| The dot.com phenomenon has been compared to the Californian gold rush. Some people did make a fortune but the vast majority who made the trek to the gold fields lost all they had. The people who made the money were, in the main, those selling maps, provisions, or alcohol! |
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| So it is with dot.coms. Hardware and software companies and those offering services to the Web market place have shown excellent returns, although many are now facing more difficult times on the back of a diminishing market, as dot.coms fall by the wayside. |
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The failure of so many companies has been put down to the lack of management "savvy" - few of the companies had any experienced managers in place who could bring an element of realism to what was happening; |
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Lack of technology know-how - money was thrown at technical solutions without a full appreciation of what was required and the implications of what might happen if the anticipated numbers of visitors used the facilities on the Web site; |
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Lack of any financial rigour or cost control - money was for spending and little thought was given to controlling costs and balancing the books; |
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Profligate spending of investor money - it was wryly said that the dot.com phenomenon could be defined as the quickest way of getting investor money spent by an advertising company. |
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| In a relatively short period of time, the term dot.com took on a slightly unsavoury taste as companies failed and high initial investments showed little return. Analysts started to forecast that many of these companies would fail. The dot.com bubble could not continue and it was predicted that 1 in 4 dot.com companies would run out of cash within 6 months, and the majority would be out of cash within 15 months. |
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| Boo.com, a high-profile fashion e-tailor was one of the first well-known companies to fail. It spent all but �0.5m of $135m raised to finance its operation and was still looking for a further $30m when the company folded. It launched a summer collection of clothes in the autumn and had underestimated the impact that process-hungry 3D images would have on the technology they were using. |
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| Others have been more successful and are still in existence. Lastminute.com have developed innovative ideas for the travel business, a sector which makes extensive use of the Internet, and this may be one of the reasons why they are still in business when others have failed. In the first year they lost �11m and now expect it will be at least 2 years before they make a profit. Their shares floated at 380p and are now under 50p. |
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| A survey by US Net monitoring company Webmergers.com has revealed that dot.coms are going bust in ever increasing numbers and the situation is very similar in the UK. In the US one dot.com goes bust every day and the trend shows no sign of slowing down. Those suffering the most seem to be companies who only sell to consumers via the Web and have no bricks and mortar presence - in other words they didn't have an existing business. Many Net companies that deal only with businesses are struggling too and some analysts think that traditional businesses may be the only ones that will be able to make the Internet work for them. |
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| One reason why customers buy on-line is the potential lower prices, but a recent survey by credit card company Goldfish found bad news for dot.com companies who have a Web presence and nothing more. "For similar products, traditional retailers who have added on-line distribution, as opposed to those who are pure dot.coms, were 12.7% cheaper - which is not something we were expecting," said a Goldfish spokesman. "Whilst many dot.coms are slashing prices in a bid to attract customers, our survey suggests that traditional retailers are still able to undercut them. The range of prices for similar goods on the Net can be huge and there can be 40% difference in price." |
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| There are many reasons for the failure of dot.coms. Some were simply running unsustainable Web businesses whilst others were taking too long to attract enough customers to make the business viable. The situation is being made worse for dot.coms as traditional businesses, who may have taken some time to put their eCommerce strategy in place, are now starting to set up their own Internet operations. |
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| The get rich quick syndrome associated with dot.coms has taken on a note of realism. There still will be companies who start up new and innovative businesses made possible by the potential of the Internet. Obtaining financial backing is now much more difficult and a very strong business case will have to be put forward. |
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| The failure of many dot.coms is making some traditional bricks-and-mortar companies wary of using the Net to sell to consumers, but many of these firms are now starting to see how the Internet can change the way they actually run their business. The dot.com disaster has been a catalyst that has led people to understand and appreciate the impact and transformation-potential of the Internet, and without that catalyst developments would have taken much longer. B2C companies could offer personalisation to customers, consider affiliate programs or advanced eMail marketing campaigns and customer management systems. |
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