(courtesy of ztect on the 50% Gains thread) Pay attention to Rule No. 5
from Business Week - some content edited
"Dot-Coms: Can They Climb Back? "
"They'll have to run leaner, adapt to change,
and--above all--focus on making money sooner....
... Have the fundamentals of these companies changed?
Not really. What has changed is investors' psychology,
which has hardened from a speculative ardor into a p
rickly skepticism. Now, if Net companies hope to climb
back into the ranks of the elite, they're going to have
to start playing by a new set of rules. Out goes the
grow-at-any-cost mantra, with its break-the-bank
advertising campaigns and vast hiring sprees. The
new guidelines seem to have been crafted by accountants,
not spend-happy visionaries.
Here they are:
-- New Rule No. 1: Get profitable sooner. Forget
B2B or B2C: The new catch phrase among dot-coms is P2P,
for path to profitability. Venture-capital investors
once tolerated profits forecasts three or four years in
the future. Now they're looking for business plans that
target profitability less than one year after an initial public offering, says Peter Y. Chung, general partner at
SummitPartners, a venture-capital firm in Palo Alto, Calif.
Signs of this shift abound: Since April, at least 25 IPOs
have been left in the holding pen. The median age of an
IPO company is increasing for the first time since 1998,
up to 4.6 years from 4.1 through 2000.
To get into the black, companies have begun targeting
staffing and marketing expenses. In May, e-tailer
Living.com in Austin, Tex., laid off 50 of its 385
employees. And at government-transaction Web site
govWorks.com Inc. in New York, executives canceled most
of an anticipated $45 million marketing campaign.
''There's not the patience in the market to build
a brand over a couple of years,''
says CEO Kaleil D. Isaza Tuzman.
-- New Rule No. 2: Cozy up to private investors.
As public markets succumb to uncertainty, companies of
all sizes will have to retreat to private sources.
This winter, when Amazon.com (AMZN) needed some fresh
cash, it didn't print new shares. Instead it issued $671 million in convertible bonds to private investors in Europe.
For smaller players in the Net world, financing becomes
more dicey. To tide themselves over until they can go
public, a number of pre-IPO dot-coms are returning to
venture capitalists for late-stage financing. At Boston
venture firm Capital Resource Partners, for instance,
partner Jeffrey W. Potter has seen the number of
prospective deals double in just one month.
''We're seeing later-stage companies who thought they
would have gone public, but they will no longer be able to,'' says Potter.
Companies that already have gone public will find it
difficult to tap traditional private capital, but some,
such as e-tailer Garden.com (GDEN) and grocery-delivery
service Streamline.com (SNLE), are searching for other
sources of private funding--like corporations or
investment banks. ''I don't think there's practically
any e-tailing company who can continue'' without new
cash infusions, says Tim A. DeMello, CEO of online
grocer Streamline.com Inc. in Westwood, Mass., whose
stock has dropped 70% this year. ''Every single one of
them needs to raise additional capital, ourselves
included.'' Streamline still has $21 million in the
bank, which should last until at least October, but
DeMello is looking for new investors to keep the
company's motor running until it can survive
on its own revenues--or return to the public marketplace.
-- New Rule No. 3: Tear up the dot-com business plan. If operating a Web site doesn't work, try selling
technology or services to other Web sites. That
arms-dealer strategy has helped put No. 100 InfoSpace
(INSF) on the Info Tech list for the second year in a
row. The profitable provider of information behind
online Yellow Pages, maps, and phone directories
grew revenues by 265% last year, fourth best overall.
Now others are taking the same path. GovWorks.com
recently moved away from its function as an information
portal for citizens interacting with local and federal
government. Now it focuses on installing technology for
government customers through alliances with Arthur
Andersen consulting.Onvia.com, a small-business portal
whose stock soared as high as $78 per share last year
and has crashed to around $5, has shifted its focus
from selling commodity office products to acting as an
auction site for small businesses.
-- New Rule No. 4: Good technology trumps glitzy
marketing. It once was an article of faith: building
a brand on the Net was paramount--even if it meant
years of losses. Now, dot-coms are finding that useful
technology can be an important differentiator. That
helps explain why CNET Networks Inc. (CNET), which
operates a handful of Web sites dedicated to technology
products and news, paid $700 million in stock last January
for mySimon,a popular site that sorts and compares
products and prices on the Web. Leading online travel
site Travelocity recently installed a feature that lets
users view seat configurations on dozens of planes and
pick where they want to sit. "If a company has a
unique technology, investors will still pay for it,"
says Theresia G. Ranzetta, partner at venture-capital
fund Accel Partners in Palo Alto.
-- New Rule No. 5: Cultivate your best customers.
Many execs are thinking less about raw traffic numbers
and more about what people do when they're on the site.
''Six months ago, sites were buying traffic no matter
what the cost,'' says John Keister, president of portal
Go2Net Inc (GNET). ''Now it's about profitability per
user.'' Struggling e-tailer eToys Inc. (ETYS) in
Santa Monica, Calif., recently scrapped the 5% to 12%
sales commissionsit was paying the network of sites that
referred new customers. Instead, it's giving 10% discounts
to people who sign up for a gift registry--encouraging
repeat visits. ''Companies are looking hard at
customer-acquisition costs,'' says Forrester
Research analyst Dan O'Brien. ''If you can't convert
them into a buyer or sticky visitor, than maybe it
doesn't make sense to spend a lot for them.''
The stock market has begun rewarding companies that help
Web sites wring more value from each visit.
That helped propel a small, New York-based e-mail
marketingcompany, NetCreations Inc. (NTCR), to No. 78
on the IT 100 list. The company showed 615% revenue
growth, top overall. Another top company, Art Technology
Group Inc. (ARTG) of Cambridge, Mass., which came in at
No. 90, makes software that helps Web sites personalize
their interactions with online customers.
Over the long haul, analysts expect Wall Street investors
to sweeten on dot-coms again but say they'll only bid up
companies that are leaders in their fields with clear
paths to profitability. '' The next few quarters are
going to be turbulent times,'' says Accel's Ranzetta...."
By Dennis K. Berman in New York |
