Divakara K. Udupa, E-mail: [email protected]
The dotcom boom produced many instant millionaires and multimillionaires. With the subsequent bust, some became paupers too. Dotcoms brought along with them new concepts in selling to customers. As they do not need expensive show rooms in strategic locations, big warehouses and large inventory, the operational costs are comparatively less. So they are able sell products cheaper than the traditional old economy companies.
Amazon.com, started by a young programmer Jeff Bezos, became a pioneer in the Internet selling. Initially, it started selling books directly to customers by the Internet at very good discounts. In addition, it introduced the ranking of book sales, reader’s reviews and selling used books. Its growth rate per quarter far outstrips its major competitors in the US such as Borders and Barnes and Nobles. Some of the other notable and popular Internet related companies are America Online, Yahoo and eBay.
Using a good dotcom model, small companies can take on Goliaths. Under normal circumstances, it is very difficult to compete against established and entrenched giants who have unlimited resources including money. The dotcom phenomenon literally transformed this paradigm.
In the stock market, the dotcoms were evaluated slightly different from the traditional companies. They were evaluated on their future potential earnings and growth. The stock market, especially, in the US was very liberal and receptive to these companies. In the US, the Internet penetration is about 59 percent and the Internet usage rates are negligible. So there are huge business opportunities. Still, many dotcoms did not have any major product to sell. Their business model was based on the advertising revenue.
In addition, slowly many players including the large and established companies started their own dotcoms. Gradually competition increased. Meanwhile, some reckless ones just went on a spending spree without much control on expenses. Some dotcoms did not have good fundamentals and lacked sound management. When the time is good every player including the bad ones get a chance. Also, the stock market, which was going up and up, started downward slide due to various reasons.
Slowly, many dotcoms, which did not have much revenue, started floundering. The stock market also began to take a serious look at these companies. So the Internet stocks, which had skyrocketed, took major hits. At the same time, the funding from the venture capitalists was coming at a slower pace. Many dotcoms, which had over-stretched based on expectations, started folding-up and falling apart like ninepins. A large number of dotcoms have simply vanished and some more are vulnerable.
On the pattern of the US dotcoms, we also witnessed dotcoms mushrooming everywhere. Here also some had strong fundamentals and some, on the other extreme end, did not have anything. We have some of our own limitations such as the limited availability of finance, high interest rates, low Internet penetration and high Internet usage cost.
Our Internet usage cost of around Rs. 30 is very expensive for any useful e-commerce. For e-commerce to takeoff, it has to come down to below five rupees per hour. Besides, the current customer base of about five million Internet users is very limited for any major and successful e-commerce business model. In addition, there are bottlenecks such as security issue, trust and a limited section using credit cards for transactions. We also need to have reliable and fast communication infrastructure.
Because of the above limitations, our dotcoms have been growing at a slower rate than in the advanced countries. We will be mostly followers of the US dotcom models. Also the mortality rates of dotcoms are going to be substantially higher.
It will be interesting to look into some numbers in the e-commerce area. As per the study conducted by Shop.org and Boston Consulting Group, online spending should increase by 44 percent from the year 2000. This year retail sales in the North America is expected to reach 65 billion dollars. Overall, there will be higher growth in the Internet related sales for the next few years as compared to the brick and mortar companies. If the e-commerce is able to expand its reach to the uncharted and unexplored markets around the globe, we can imagine the growth potential in this area. The full potentials of the Internet and e-commerce are still to be realized.
The downturn and troubles we see in many dotcoms leading to a major shake up is a common phenomenon during the evolution of businesses based on new technologies. This is just a blip on the radar screen. However, dotcoms with solid fundamentals are going to survive and prosper. They are going to be the future business leaders. Make no mistake: dotcoms are here to stay and some of them are going to be the future bellwether companies.
The Economic Times, December 5, 2001.