DotCom DotDead?- ABC's of Small Business

DotCom DotDead?

Recently there has been a glut of news reports concerning the failures of many large name, high profile dot com systems. Major companies, that last year expended vast amounts of money to get online for the christmas season, are this year scaling back on their internet presences. Industry pundits from New York to Calcutta are calling the dotcoms a failure, dotcoms are dead etc. Or are they?

Dotcoms, an inside view from the trenches....

As a website design and development company thats been in the business since 1994, we've always looked at the dotcom pheomenon as an abberation, a wrong turn in the information super highway. We've been offered on several occasions participation in the construction of new dotcoms, mostly in exchange for equity in the new company, and have always passed on the offer. Perhaps it was a mistake, but we don't think so.

In order to understand why so many dotcoms are failing, one need look to the initial business outlines to see they were constructed using rose colored glasses. Websites have a definitive life cycle, and yet, the people responsible for building these systems overlooked that life cycle.

The Cycle: Websites undergo a specific life cycle, broken down into phases, the life cycle consists of;

Concept
Construction
Commencement of Service (and promotion)
Update
Repeat steps 3 and 4 infinitely.

Unfortunately for most dotcoms, they usually went wrong in step 1, the Concept. The problem with most dotcoms, to put it simply, was they, as a whole, usually had an over inflated opinion of the value of their services, and an even greater inflated opinion of their user base. Few dotcoms today can open their doors and expect to receive millions of visitors on the first day without expending vast amounts of money in pre-rollout publicity. And those that do get that kind of traffic, usually end up regretting it. (Case in point, the Quixtar division of Amway which was unable to sustain operation on their first day because of overwhelming site traffic).

First day traffic related crashes are so unusual that they make the news. In most cases, the pre-rollout publicity has been very limited, or non-existant, hence many dotcoms start out with little or no traffic.

If one considers the life cycle of your typical website, it can be as much as six months to a year before a site achieves its optimal traffic. And your typical company owned website doesn't usually have creditors and investors breathing down someone's neck, looking for that promised pot of gold.

The real question is, does this fallout spell the end of dotcoms? To answer, yes and no. Yes, it spells the end of dotcoms and their outrageous IPO's and claims. Yes, the days of investors flocking to a dotcom, and new companies with no track record are suddenly worth more than blue chip stocks are over. But a death of the dotcoms? No, that won't happen. Now is the time for reality to set in. I believe you'll see a whole new era of leaner, meaner dotcoms, tightly focusing on achieving profitability instead of being all things to all people.

Take Yahoo! for example. This giant of the internet is responsible for servicing over 22 million searches daily, not to mention the hundreds, if not thousands of real time chat rooms, bulletin boards, email, and other online wiz bang gimmicks they have. So why then are they seeing lean times? Two reasons. Number one is simple, they built their business relying heavily on a single source of income, the ubiquitious banner advertisement. And two, a rapid growth in excess of their income. In short, they outgrew their own economic model!

Now you see Yahoo! struggling to plug the gaps, services once free are now paid services, this, coming at a point where online banner ad revenues are taking a downturn is hurting an otherwise excellent net resource. The free ride couldn't have lasted forever, and sooner or later advertisers would have realized that most banners are returning barely a 1% click through ratio. Advertisers want to see more than 1000 visitors to their website for every 100,000 banners displayed.

Yahoo! long ignored, and to some extent, still ignores huge untapped markets. Their targetted banner ads are priced at such a level that only fortune 500 companies can afford them. In some respects Yahoo!'s attempts to promote profitability are hurting it, and to this day, Yahoo! still fails to recognize that it wasn't the Fortune 500 companies that put them on the map, but rather the millions of Mom & Pop operations that populated their database, that used their email, or bbs or chat rooms. I believe that ultimately Yahoo!'s survival will rest firmly on those that built the system. Whether or not Yahoo! will recognize that fact in time to turn the tide still remains to be seen.

Another major player that has recently folded was one of Yahoo!'s chief competitors. Say goodbye to Go.com. Owned by Disney corporation, this latest victim learned the hard way that dotcoms can not live by banners alone. Again, like Yahoo!, Go managed to outgrow its income. Rather than attempt to keep things going, Disney opted to pull the plug on Go, putting its pieces up on the auction block.

Expectations. In both of these sample cases, both companies developed unrealistic expectations. And using those expectations they managed to burn themselves badly. Its important to start any business with a reasonable cushion, and an expectation that it might be a year, perhaps as as much as three, before the company moves out of the red. The cases of Go and Yahoo! illustrate a desire to hit profitibility much sooner than that and what can happen when the issue is forced.

A New Era or "Omigosh Batman whatta we do now?"

Lets start our new era with the following mantra, "Profitability online takes work!".

It's important to realize that most people wanting to put up a website aren't falling into the category of "a dot com". And most brick and mortar business owned websites have been erected as an extension of their own business into cyberspace.

A business that is breaking into the internet needs to consider the internet as a secondary income stream with the "potential" of becoming a primary income stream. Potential, not instant gratification. A company selling gizmos or offering a service must consider the internet an adjunct to their primary income stream. The company that plans to discard its traditional means of generating income in favor of a the internet will surely fail. However a planned transition, over the course of 3-5 years, is a realistic plan.

But what of the people that want to build a true dotcom? The dotcom of tomorrow needs to be built on a realistic basis. First off, development costs need to be trimmed, and the fledging company needs to have a realistic idea of the traffic flow through the website. With so many Venture Capitalists turned off by the idea of investing in a dotcom, dotcoms need to realize a profit based on a carefully planned promotional phase that squeezes the maximum possible value for their dollars being spent.

Tomorrow's dotcoms need to be lean and mean. Money isn't a renewable resource, so spending needs to be done wisely, such as;

Building their sites using outsourced development teams. Sure the initial outlay may be higher, but in the long run it is cheaper than hiring employees.

Servers should be leased. We're talking websites here, leasing servers means you may be paying more for hosting fees, but you're saving money on administration, data center maintenance and facility costs as well as telecomunication costs. And if you succeed with your site, you can always opt to relocate to your own data center at a later date.

Targetted promotion. Monster.com advertised in the 2001 superbowl. For several millions of dollars (not counting production costs), they got a national attention that was nearly totally untargetted. That same amount of money could have bought several months worth of ads in business and industry publications. The folks at monster.com might not agree, but I felt that was a gross waste of money, and if they continue spending money like that, they just might end up sitting on the sidelines with Go.com.

Specialization Specialization Specialization! This is where too many dotcoms have failed. Instead of building one premiere service, they blanket their site with dozens of little services. In the end, many dotcoms ended up with a mediocre service. The dotcom of tomorrow will be service specialized.

Here at Northern Webs, we are a dotcom of sorts. In the highly competitive environment of web design and website services, we learned a long time ago the value of specializing our services. By offering a specialization, and one that most design companies cannot do, we've seen a steady increase in traffic for the past 6 years. Another aspect of specializing is it makes it easier to build name branding. It has taken a lot of hard work, sweat and more than a few tears to get where we are today.

So are the dotcoms dead? No my friends, not really. The heady days of wild IPO's and money flowing like water are gone. Now is the time for the new dotcoms, soundly rooted in the traditional business fundamentals, to step in and take a swing at it.

- Northern Webs