Dot.com versus dot.coming

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It is the Dot.com companies that have created the fever of expectation, which while not alone in creating the "e" world of today, are responsible for much of the public awareness. When I read that the American "rapid delivery" company, Kozmo, has now reduced its staff by 339 people to 3,000 it brings home just how big this market is and just how rapidly it has grown.

IT companies have obviously benefited greatly from this growth, Sun and Compaq in particular, but it has also created new software and services companies such as Ariba, Commerce-One, etc. and new technology companies such as XMLSolutions, Stilo, etc. It has also caused a significant shake up among the IT giants, including Microsoft, IBM and Oracle.
In fact all this activity is good for the IT industry itself. I wonder for instance if all the welcome new life that is emanating from IBM would have happened without the catalyst of the e-commerce revolution; I doubt it. But it should also be noted that while many IT companies are benefiting, there must be others who will loose out from such a significant shift in the market. C'est la vie.
However the Dot.com companies, the retailers, are not having such a happy time. The bulk of them are run by entrepreneurs with venture capital backing. The VCs are in it for profit and work on the principle that if they back three and one fails, one holds on and the third one succeeds, then it will increase in value far more than double the investment so that the group of three is worth more than the total investment. They don't particularly care which one wins. Thus there are inevitably too many Dot.com start-ups and there will be a very high percentage of failures. The first signs of this happening appear in the free-fall of the market value of most of the Dot.com stocks. The next (and current) sign is a raft of warnings of pressing need for cash injections. The third phase, soon to be with us, is failures.
Why are most of the Dot.com companies doomed from the start? The answer lies in the total lack of understanding that VCs have of IT and the role it plays in the enterprise. It is truly amazing that such gullibility and naivety exists among this overpaid and over powerful section of the financial community. They are a menace! They are approached by entrepreneurs and are wooed by the gloss of the upfront appeal of the typical Dot.com idea. The money goes into two sources, one in building the customer-facing e-commerce site and the other in advertising the service. Unfortunately this ignores the key services that IT provides, the logistics.
Amazon.com was the prime example and they are now reported to be in trouble. They were blessed with being the first and thus got free advertising of the site and still they can't make a success of it! Incompetence is the word that comes to mind after disbelief! The rest of the Dot.coms have to spend a big percentage of their capital on advertising. Selling space on bill boards along the highways of California is probably the most profitable e-commerce venture!
The traditional retail industry was seen to be slow in moving to e-commerce, due to a mixture of caution and an awareness of the problems of logistics. Now they are steadily introducing their Web marketing, which in effect is just another shop front which can exploit the current invoicing, warehousing, distribution, etc. services. Further while there is some need to advertise the new services, the high street retailers do not have to create brand-awareness and thus have a much lower cost.
Over the next few years then a more level playing field will mature, dominated by e-trading from the more traditional retailers, living alongside conventional stores. Most Dot.coms will have gone, many just disappearing, but some by absorption into the mainstream retailers.
The effect on IT is once again very good for IT! The first phase is to provide technology to start-up, technically naive companies, with no existing infrastructure. The second phase is to "Dot.com" existing companies, which means a new e-commerce front-end, integrated with existing systems.. And they must all have to work with the current generation of B-2-B servers such as Ariba, BizTalk, etc. Key to integration of the new Web-based services lies in Enterprise Java Beans. EJB version 2.0 is the key IT product for the next generation e-business.
And there is yet another generation to come in the rebuilding of new integrated systems after the new front-ends have been married to legacy systems, but that is for five years time.

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article 2000-12-15T00:00:00.000Z Martin Healey
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