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ECT News Community   »   E-Commerce Times Talkback   »   Re: Lasting Benefits of the Dot-Com Bubble



Re: Lasting Benefits of the Dot-Com Bubble
Posted by: Teri Robinson 2002-07-15 08:39:37
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Now that the dot-com bubble has burst, sparking a recession that has spread through
the U.S. economy, the boom era is facing its share of harsh criticism. But for all the
failures that dot-coms brought to the business world, they also were responsible for some
truly astounding technological innovations and drastic changes in accepted business
models. "Integration is king," AMR Research analyst Louis Columbus told the E-Commerce
Times. "That was a huge lesson."


Re: Lasting Benefits of the Dot-Com Bubble
Posted by: Jim Pflaum 2002-07-16 16:43:57 In reply to: Teri Robinson
It troubles me to see that many of the Net's business analysts and business execs are still bashing the pure-plays.
I've been a Web site operator for nearly five years and I don't think that any of the Net's business analysts have ever known what factors truly caused the Dot-Com crash or, moreover, why so many pure-plays are still crashing every month.
Ever since the crash started two years ago, most analysts have claimed that the crash was caused by the pure-play sector's "reckless entrepreneurs" and/or by the sector's so-called "flawed business models." I've thoroughly researched the crash and I'm convinced that the Net's analysts can't back up their crash theories with any credible research facts.
First off, all of the public records I checked, including hundreds of SEC reports, clearly show that well over 80% of the Net's failed pure-plays were managed by reasonably bright and qualified CEOs, not by a bunch of reckless entrepreneurs. While some pure-plays were no doubt run by reckless and irresponsible entrepreneurs, most pure-plays, however, were run by dedicated and hard-working career managers, many of whom formerly held upper-level executive positions with some of the business community's most respected companies.
Second, the business models that were used by nearly all of the failed pure-plays weren't "flawed" as most analysts say, but were actually adaptations of the exact same tried-and-proven business models that millions of conventional brick-and-mortar businesses have used for years. There's no question that some investment bankers, for whatever reasons greed, ignorance, etc - backed some wacky, high-risk ventures, but the vast majority of the failed pure-plays, at least 90% or more, received IPO funding precisely because the investment community felt their business models were credible and risk-worthy.
So who or what really did cause the crash? Virtually everybody, including most analysts, agrees that nearly all of the pure-plays were wiped out by their extremely high customer acquisition costs, which averaged a whopping $40 to $90 per customer, or roughly six to ten times more than the average cost conventional businesses spend on ads and other site promotions to acquire a single new customer. While neither the Web site operators nor the analysts dispute this fact, they do, however, have entirely different views about what factors actually caused the pure-play sector's customer acquisition costs (CAC) to soar so high.
Although most analysts continue to cling to their theory that the sector's unusually high CAC was caused by the pure-plays' so-called "reckless business practices," it's worth noting that no research study has yet been conducted to verify the validity of this theory. Over time, as business researchers study the causes of the crash more closely, I'm sure their studies will reveal some new and rather surprising insights as to why nearly all of the pure-plays experienced much higher CACs than conventional businesses normally experience.
One revelation that will undoubtedly surface from these studies is that the sector's CACs were affected by the public's concerns about the safety and privacy aspects of the online shopping process far more than anybody ever suspected. While a number of other factors, including the public's innate slowness to embrace most new innovations, also inflated the sector's CAC, it's clear to me and to most other Web site operators I know that our CACs began zooming up during the late 1990s when the media started headlining stories about hacker attacks, vendor privacy breaches and online credit card theft.
Although millions of Internet users seem to shop worry-free online every day, several new research studies, including a recent study conducted by UCLA's The Anderson School, show that millions more, some 60% to 70% of all Internet users, still harbor moderate to strong concerns about credit card fraud, vendor privacy breaches, and personal identity theft. While these security-conscious users often use the Net to "window shop," most have never bought anything from the Net's retailers, particularly from the pure-plays.
These same studies, moreover, also show that "active online shoppers," those Net users who actually do buy goods and services online, are three to five times more likely to buy from the Net's brick-and-click stores than from the pure-plays. I'm sure that's one of the primary reasons why Amazon, Buy.com and many lesser-known retail pure-plays spent so much money promoting their sites; they knew they couldn't compete against huge retailers like Wal-Mart, JC Penney and other brick-and-clicks without first establishing a strong trust-bond with online shoppers.
It's a shame, but at this point it appears that very few of the pure-plays will survive much longer. Amazon and a few other large pure-plays might make it for another year or so if they're lucky, but they too will either crash or be forced to merge or sell out if they can't lower their CACs to within a few dollars of the retail industry's normal $15 level. Make no doubt about it; the pure-play sector isn't just crashing, it's heading toward extinction.
I realize I may sound like a doomsayer, but I'm not. To the contrary, I firmly believe that the pure-plays can recover, grow, and even flourish, but only if the Net's leaders come to terms with the public's online security concerns. I'm not suggesting that the resolution of these concerns will rid the sector of all of its ills. It certainly won't, but it will definitely boost the public's trust and confidence in the online shopping process and, thereby, offer the pure-plays some relief in reducing their excessively high customer acquisition costs.
Maybe the Net's analysts have convinced you and everybody else 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.
In closing, I would like to urge analysts like Louis Columbus and other pure-play bashers like him to rethink their theories about the crash. Despite what they may claim, I'm absolutely sure they never bothered to gather any research data when they concocted their crash theories.
Thank you for giving me this opportunity to sound off. - Jim Pflaum, Raleigh, NC
Jump to:
What was your initial reaction to news of the Colonial Pipeline cyberattack?
It demonstrates that all critical infrastructure sectors are at high risk of disruption by cybercriminals.
Everyone will be paying for this attack in the form of higher energy costs.
Governments need to work more closely with private industries to protect networks for the sake of public safety.
It's a global problem. An international alliance must be formed to hold the perpetrators accountable and prevent future attacks.