Dot.com avalanche may bury them all

By NIGEL COPE Herald Correspondent

Is it all over for the dot.coms? You would certainly think so, judging by the relentless flow of grim news from this punch-drunk sector in the past few weeks.

The list of layoffs, liquidations and asset writedowns grows longer each day.

Last Thursday, the sector hit new lows with the closure of Mercata, an online retail business backed by Microsoft co-founder Paul Allen, just a day after scrapping plans for a sharemarket float. The same day, eToys, the stricken US e-tailer, laid off 700 of its 1000 staff just days after closing its British operation.

That bulletin came after a report by Webmaster.com, which said that at least 210 dot.com firms around the world folded last year, 60 per cent of the collapses occurring in the final three months when the venture capital firms switched off the cash lifeline.

Other cutbacks listed on US websites that chronicle dot.com failures include layoffs at listen.com, a music site, and beenz.com, the digital currency venture, as well as redundancies at the US digital media division of News Corp.

Also included are online funeral arrangers such as heavenlydoor.com and legacy.com.

Industry reports have put the number of job losses in the internet sector at up to 41,000 last month alone in the United States. In Britain the figure is put at 31,000 redundancies so far in the dot.com shakeup.

But this is likely to be an underestimate, as many internet enterprises are back-bedroom operations whose demise would go unreported.

New Zealand's dalliance with dot.com businesses has been only passing compared with the numerous floats in the US and Europe.

E-retailer FlyingPig limped before it ever got airborne, while E-force, the timber company turned dot.com, is undergoing a capital reconstruction.

Across the Tasman shares in internet portal group Ecorp, majority-owned by Kerry Packer's media and gaming group Publishing and Broadcasting, hit a record low on Monday as concerns over internet earnings prospects deepened.

Ecorp was down 6c, or 4.2 per cent, to $A1.37 - 84 per cent below the record high $A8.60 reached last February 18.

Ecorp relies heavily on a non-internet related business, booking company Ticketek, which contributed $A46.9 million of its total $A52.63 million in revenue for the year to last June 30.

With sentiment towards dot.coms plumbing new depths worldwide, you would have thought business-to-consumer internet entrepreneurs in particular would be queuing up to throw themselves off the nearest tall building.

In fact, they are scrambling to reinvent their enterprises as broader businesses, and many are backing away from the dot.com tag altogether.

Two managers who are doing just that are James Benfield and Chris Littmoden, former Marks & Spencer directors who left the ailing retailer to join the internet revolution.

Mr Littmoden is winding up Easier, the quoted online estate agency, and his other business, Freecom.net, has been reinvented as a software house under the name Systems Union.

Mr Benfield is chairman of the Confetti network, a wedding website. He says his business is now more of a gift-list and delivery operation than a dot.com.

Mr Benfield makes the point that success comes from having a strong brand, whether you are online or not.

That view is born out by recent figures showing that 11 out of the top 15 websites over Christmas were traditional retailing names rather than dot.coms.

Only stellar internet brands such as Amazon and Yahoo! bucked the trend.

These findings were supported by figures from Toys'R'Us last week. The company said its internet sales in the holiday period were more than triple the previous year's level. This was mainly due to its decision to scrap its problem-plagued website and team up with Amazon.com.

Wal-Mart, K-Mart and Target have also done well online, even though Wal-Mart has been disappointing investors with its core business.

In Britain, Hamleys is said to be pleased with Christmas online sales. Elsewhere in the Old Economy, bookmaker Littlewoods achieved e-sales of ¡2.3 million ($7.6 million) last month.

Where will all this end?

The future is bleak for standalone dot.coms; they must cut marketing budgets to save cash, but sales will suffer.