Re:Viewing 2001: Dot-com lessons

The bubble burst and many will remember 2001 as the year internet companies like Beenz and WebVan died. But, warns Jon Bernstein, it would be wrong to forget the successes - Friends Reunited, Tesco.com and others...

Earlier this month a group of hardened dot-com entrepreneurs met in a modest London pub to share experiences, know-how and cost cutting techniques. Cluster is the most pragmatic of clubs - no dress code, no rivalry and certainly no venture capitalists, brokers or bankers.

It's a far cry from First Tuesday, the networking club that put would-be entrepreneurs in touch with their millions. First Tuesday bit the dust in January (http://www.silicon.com/a42077) and if Cluster is to become the new hub for dot-commers, the symbolism couldn't be starker.

2001 has been the first full year the internet community has lived outside the bubble. Some have dealt with their new surroundings well - injecting realism to their business plans, some even injecting profits to their financial statements. Others have dealt less well, managing to repeat the mistakes of 2000.

WebVan, the online grocer that filed for Chapter 11 in July (http://www.silicon.com/a45602), is perhaps the most potent example of the year 2000 syndrome. When the firm went public in 1999 its share price shot up to $25 giving it a valuation of $8bn. Far from being stunned many analysts were slightly disappointed believing the valuation could have been higher. All this despite the fact WebVan had only ever made $2.5m in its previous three years.

By the time Chapter 11 loomed the shares were worth a mere 6 cents and the predicted $500m annual sales just a pipe dream. As a post-script to the WebVan story share certificates were sold on eBay over the summer for an all-time high of $400 a go (http://www.silicon.com/a46044). The dot-com memorabilia market is proving more enticing than the businesses it celebrates.

WebVan suffered less for the want of a decent business model than for a lack of business savvy. Sales predictions took little account of big name offline brands who would inevitably join the fray when the attractions of online became obvious. As we'll see with Tesco.com, online grocery delivery does have a future.

If WebVan was unrealistic, the people behind Beenz simply came up with a bad idea (http://www.silicon.com/a46624). Quick to correct anyone who described its proposition as the online equivalent of Air Miles, the Beenz management never quite persuaded people that what they really needed was a brand new 'currency for the web'.

Web users don't want a new system of barter. They want to be able to spend their dollars, pounds and euros easily and securely.

On one level it looked liked Beenz' misconceived notion might succeed despite itself. After all Beenz did boast five million members. But crucially - for a business model that would be judged by its universality - Beenz only managed to sign up 300 websites to deal in the currency.

If Beenz - or a successor - was to ever have its day it was only because we have yet to find a common micro-payment platform. And that's a problem that still plagues e-tailers in late 2001.

Other high-profile names who won't see in the New Year include Sportal, Bloomingdales.com, and uploaded.com (sadly missed by 'lad mag' fans).

But overall we haven't seen the carnage of 2000. By July the number of dot-coms going out of business was down to a modest 30 per month. Cynics will say that's because there are less of them to mess up but there are some real successes.

We now, for example, have profitable web firms: eBay , Google, Priceline and Staples among them. Closer to home Amazon.co.uk, Tesco.com and - would you believe it - Lastminute.com are all forecasting break even during 2002.

The award-laden Tesco.com is often held up as the UK success story. And despite losses that were still running at £3m during 2001, the description is a fair one. Revenues for the first nine months of the year are up 77 per cent and, given 95 per cent of Tesco shoppers have yet to make the move online, there is massive potential (http://www.silicon.com/a49484 ).

Crucially, Tesco has also proved that clicks don't kill bricks. Rather, shoppers who use off and online channels combined spend 20 per cent more than those who still rely on the high street (or the out-of-town superstore). In short, Tesco has removed one of the biggest fears of old world companies, the fear of cannibalisation.

The real dot-com success story of the year, however, isn't Tesco.com. Nor is it a classic VC-backed dot-com of two or three years ago...

For the second part of this review, click here: http://www.silicon.com/a50098