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July 12, 2000 Event
B2C Internet: Have Reports of My Death Been Greatly Exaggerated? Dot bombs, dot com today-gone tomorrow, dot com deathpool -- the insults about the new economy continue to pile up at an alarming rate, particularly in the B2C area of this once heralded revolution. Yet is all of the criticism fair and accurate? Surely there is more promise in a sector home to marquee names such as Amazon, Yahoo!, and eBay. Apparently not, according to the press corps, most investors, and increasingly the general public. Through a combination of negative hype, industry maturation, and poor business practices, success as a consumer Internet play seems to be a dying dream. But while the climate for B2C companies undoubtedly has become much tougher, we are far from the demise of this incredibly promising sector of Internet business. What sparked the apparent B2C death spiral? Perhaps it was the proliferation of negative etailer events: consolidation (Petstore/Pets), bankruptcy (Reel, Boo), major brands on the brink (Dr. Koop, CDNow), and of course layoffs (Amazon and many others). Clearly many B2C companies have been mismanaged and have neither a business model nor a real future. Still, a few bad apples shouldn't spoil the bunch, and sweeping generalizations have hurt companies with real value and potential. Historically speaking, mergers and consolidations, layoffs, and bankruptcies are natural in emerging industries. These events help define a sector’s winners and weed out the losers. In a Darwinian sense, the B2C market is going through the normal process of evolution, not death. Nevertheless, the disparagement continues, though much of it seems like sour grapes. Last week’s Washington Post reported: "Those of us who have not made gazillions off the Internet may be suppressing the occasional smile as we read of layoffs at some of those cool workplaces where the folks get to play with toys and feast on free snacks." Even those in the business are getting in the act, as evidenced by the popularity of websites such as fuckedcompany.com. But while the B2C obituary has been written, the body is far from cold. Forrester expects the B2C market to grow from $40 Billion today to a projected $160 Billion in 2003. With this large a reward, B2C companies that focus on the basics profitability, customer experience, and innovation not only will survive, they will flourish.
Key Learnings
POINTING FINGERS
A collapse in the B2C space has forced many Internet companies to re-examine their business, their space and the opportunities that lie ahead. But why did it happen and who is to blame? From Alan Greenspan to the media machine, no one is safe. Widespread finger pointing places equal blame on inexperienced investors and over experienced media companies, ever eager to paint tomorrow's dynasty on the ashes of fallen companies. As the media lauded ventures without true value propositions it generated a B2C euphoria that built confidence in the minds of inexperienced investors, thereby driving valuations up. As quickly as the media inflated B2C's prospects, it brought B2C players back to earth, exposing instability in both major players and the market they were competing in. An "Internet generation" of companies has come and gone. They spent too easily, hired too quickly and were unable to build lasting startups in the market-allotted period of time.
BRICKS AND MORTAR FINALLY CLICKED
Lower costs and more efficient channels made etailers attractive plays early on. However effectiveness in dealing with real world issues has allowed bricks and mortar retail players to create a formidable online presence. E-tailers must address traditional business issues such inventory management, order processing, demand fulfillment, and customer service. After some high profile slip-ups last Christmas season, it is clear that online B2C players still have a long road ahead. With extensive proven infrastructure in place, offline retailers creating an online presence are becoming legitimate and trusted destinations for consumers.
THE MORNING AFTER - BRING OUT THE BUSINESS MODEL
Many Internet companies arrived on the scene with ideas, not business models. As the market matured and educated itself, companies that could execute and monetize their efforts were rewarded and those that could not produce results were punished. With high operating, customer acquisition, and customer retention costs, a large number of B2C players are now finding themselves drowning in red ink when just a year ago such behavior was not simply tolerated but encouraged. Consequently, the VC well is drying up for ventures whose liquidity horizon is simply too far off in the future to justify an investment today.
SURVIVAL OF THE FITTEST
Many B2C companies suffered from too much hype and too little substance, giving their market segment a bad name. Yet those who lasted through this latest test will continue to distance themselves from the pack. The bar for B2C companies that will succeed is noticeably higher now, and only those that can deliver on tangible value to their customers will find themselves in sound position to surpass it. The Internet market segment will continue to evolve, shake-outs will brutally continue for the remainder of 2000 and this coming Christmas season will serve a final death knell for yesterdays hopefuls.
QUOTES OF THE NIGHT
"The excitement of the Internet has settled into the boring fundamentals of business."
"It was just too easy... decide on something to sell, slap up a website, initiate an expensive advertising campaign -- funding was not far behind."