E-Commerce Times Talkback
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Like the classic fairy tale about the emperor who doesn't wear any clothes, the Internet
boom was built on imagination and hype. How did hundreds of dot-com companies based on
dumb ideas, without any products or revenue, sucker so many investors? "As long as people
were having great parties and staying out all night, everyone looked the other way," said
Richard Laermer, author of trendSpotting. "If these companies had paid attention to the
customer from the get-go, some of them might have succeeded."
Ever since the Dot.Com crash started in early 2000, most everybody has blamed the crash on the pure-play sector's "reckless entrepreneurs" and on the sector's so-called "flawed business
models." While these and other related factors certainly doomed some pure-plays, they definitely weren't the primary factors that actually caused the crash.
I've thoroughly researched the crash and I'm now convinced the Net's business analysts can't support their crash theories with any facts. First of all, public records, including the pure-play sector's SEC filings, show that well over 80% of the Net's 700-plus failed pure-plays were managed by reasonably bright, talented and qualified CEOs, not by a bunch of reckless entrepreneurs. While some pure-plays were no doubt grossly mismanaged by reckless entrepreneurs, most pure-plays, however, were run by dedicated, hard working career managers, many of whom formerly held upper-level management positions with some of the business community's most respected companies.
Second, the business models that were used by the vast majority of the Net's failed pure-plays weren't "flawed," but were modified adaptations of the same tried-and-proven business models that thousands of conventional businesses have used for years. I'm not suggesting that the VCs and investment markets didn't fund some pretty wacky ventures. They certainly did, but most pure-plays, probably upward of 90%, received IPO funding precisely because their business models were considered reasonably credible by the investment community.
So what did cause the crash? There are no doubt numerous research organizations who are still trying to figure out exactly what truly did happen to the pure-plays. When these researchers release the results of their studies, it's likely that they'll conclude that the crash was primarily sparked by the pure-play sector's excessively high customer acquisition cost, which in turn was primarily aggravated by the following circumstances: 1) the Internet public's concerns about the security aspects of online shopping, 2) the somewhat difficult task of using electronic shopping carts, and 3) the public's innate slowness to embrace new technical innovations (e.g., ATMs were introduced in the mid '70s, but didn't achieve a 50% public usage rate until the late '80s).
Maybe the Net's analysts have convinced the world that their crash theories are right, but they haven't convinced me or most other Web site operators I know. We all know what caused the crash because we've all been crippled by the exact same problems that crippled the Net's public pure-plays – low shopper conversion rates and excessively high customer acquisition costs.
So what's the solution? For one thing, we've got to stop blaming the Net's entrepreneurs for causing the crash and start dealing with the Net's real problems .. low shopper conversion rates and excessively high customer acquisition costs. If we can fix these problems, there's no doubt in my mind that the Net will continue evolving into one of the most powerful and socially satisfying communication mediums of all time.
This was a relevent story about two years ago. And while the bonehead moves of a few dotcom executives may make for snappy cocktail party fodder, they don't hold a candle to the excesses of big business, big government, and of course big religion. Moreover, let us not forget WHY these early-stage businesses were awash in cash...