I smell death. It's the smell of a paper-like plastic burning, great colourful wads of Australian cash being shovelled onto the fire of business reality. It's the purported death of dotcoms, and the media are having a field day.
(Let it henceforth be known, and will no doubt be bleedlingly obvious, that I will use the term "dotcom" to describe Net businesses. Not Net companies, not dotcoms and certainly not dot.coms. They deserve their own non-punctuated nouns, bless 'em.)I sense that some non-IT editors were ready and looking forward to the recent technology market "correction". "Those geeks are burning cash like . . . like geeks, and they're going to come a cropper."
The headlines hollered: "Crash time", "Dotcom bubble "bursts", "Net companies on thin ice" and my favourite "Dotcom cash turns to ash in a flash". And it seems precious few strong business plans were available for incineration with the money.
A PricewaterhouseCoopers study of 28 UK dotcoms has shown that it only takes an average of 15 months for them to burn through the initial funding before they need to go looking for more. Then what? Astute financiers will identify a company that has "lost" a lot of money but has a sound plan to recoup it and then turn a profit, and the chequebooks will come out again. The other companies will be swallowed by bigger, cashed-up fish or disappear altogether.
Using cash flow statements from the Australian Stock Exchange, The Weekend Australian (6 May) showed that 74 Net companies suffered an average negative cash flow of $1.55 million in the March 2000 quarter. For some of these companies, this represents the normal high start-up costs of infrastructure (yes, even dotcoms need some of that) and establishing a market presence. Their receipts will increase over time and profitability will arrive. For many companies, though, you're left to wonder what's going on, and investors are left to weep and gnash their wallets.
In its profile of Spike co-founder Chris O'Hanlon, the Sydney Morning Herald noted that to launch the SpikeRadio Web site in the US, "Mr O'Hanlon decided to throw a big party". Note the operative word "big" - it was $468,000 worth of party. That's a lot of cocktail frankfurts and fairy-bread. Now, there's nothing wrong with throwing a party, but most people pop the bubbly to celebrate a success, rather than just the desire to be successful.
Back in Europe, Boo.com, a fashion e-tailer and one of Europe's top-funded dotcoms, has shut down after spending $266 million and failing to raise another $50 million to keep trading. These figures make the Australian numbers look pretty tame. Ernst Malmsten, Boo's co-founder, told The Financial Times: "We wanted everything to be perfect. My mistake was not to have a counterpart who was a strong financial controller." No, Ernst, your mistake was to get out of bed.
Despite the stench of dotcoms on the pyre, is it all doom and gloom? Certainly not! To the digital barricades, cybercitizens! This is the new economy (the only new economy in town when I last looked), so it is our bounden duty to uphold and encourage it. The failure of the Net-fuelled economy puts your computer magazine buying habit - and hence my job - at risk.
(As an aside, why do finance-types use "bull" and "bear" to describe aggressive and cautious investment markets? They're both scary critters, suggesting an aggressive, devil-may-care stock exchange. There's no prize for e-mailing me with the answer, just the warm satisfaction of knowledge imparted.) My effort for the dotcom cause will be next month's column - yes, it will be another one to cut out, frame and present to the kiddies (you mean you don't do that with all of them?). It will be a primer for creating a successful Net business, and with a theme like that I'll make zillions of dollars. We'll look at what works and what doesn't as a dotcom, the best champagne for your launch party, and how to assuage your guilt if you are forced to sack all your staff. I can't wait.