At Least 210 Dot-Com Bombs Dropped In 2000 - Report

The fourth quarter of 2000 was a time of heavy
casualties among dot-com companies, as some 210 such firms were
shuttered, wasting about $1.5 billion in investments, according to a
report released today.

Webmergers.com, a company that provides research and assistance to
dot-com firms trying to get to market, arrived at its latest estimates
based on ongoing reviews of about 50 publications and other private
sources, according to company President Tim Miller.

The numbers as related in the report are dismal: In the fourth quarter
of 2000, 121 major online companies of all stripes - from online
publishers to infrastructure companies - closed down. Those represent
60 percent of all dot-com failures for the year among companies with
at least $1 million in formal funding.

Altogether, dot-com closures meant the loss of between 12,000 and
15,000 jobs for the year, the report says.

However, Miller said, there may be a silver lining in those numbers.
He noted that the online company failures appear to have peaked in
November, when 46 dot-coms locked their doors for good. In December,
the number of closures dipped to 40.

Miller said companies are sometimes slow to report their plans to
close, so he anticipates that the numbers for both November and December
may rise slightly. But he nonetheless takes December's failure-rate
slowdown as a sign that the Internet market may be close to
righting itself.

"I believe we have gone through the worst of the Internet shakeout
for the Internet sector," Miller told Newsbytes. "It's certainly not
over yet, but the natural cycle has taken most of its course right now.
I feel strongly that most people are ignoring that this is a natural
cycle, a process of developing technology."

Of the companies that shut their doors last year, Webmergers.com's report
says, fully 75 percent were in the business-to-consumer market. Of those,
55 percent were e-commerce companies. Twenty-one percent of the failed
companies were geared toward other businesses.

Miller pointed out that other industries - notably biotech in the early
1990s, and even the footwear industry of the late 1980s - saw a similar
cycles of boom and bust, leaving only the strongest companies in those
industries to survive in its wake. He said no one should be surprised
that same thing has happened with dot-coms.

"It's part of a natural cycle and it's running its course," Miller
said. "It's just exaggerated in this case because of the speed with
which the Internet developed and the amount of money that was poured
into it."

In a somewhat related report, Webmergers.com today also released
figures on mergers and acquisitions of dot-com destination sites -
those that consumers access for entertainment, e-commerce, information
or other interests.

That report says 2000 Internet merger-and-acquisition spending rose by
85 percent over the previous year, hitting $87 billion for the year.

However, spending trends for the year mirrored the dot-com shakeout,
the report says. "If you look at the numbers," Miller said, "there is
almost an uncanny 50 percent decline in spending in each quarter of
year 2000."

Indeed merger-and-acquisition spending peaked in the first quarter of
the year, at $52.6 billion, a rise of $45.5 billion from the final
1999 quarter. Spending began collapsing after that.

In Q2 2000, merger-and-acquisition spending capped at $21.4 billion.
In the third quarter, it reached only $9.3 billion before landing with
a thud at $4.9 billion in Q4 - more than $2 billion less investment
than in the year-before quarter.

But here, too, Miller sees positive signs.

"We're seeing a lot of anecdotal evidence," he said. "For instance, a
lot of buyers are registering with us to buy dot-coms for sale. When
value hunters start sniffing around, it's one sign that there may be
value around."

Time will tell if he's right, Miller acknowledged. He agrees, for
instance, with analyst projections that there is likely to be a bumpy
first quarter of 2000, but that the second quarter will be the key to
determining, in the short term at least, the health of the
dot-com sector.

He said, "Here is the single metric I'm looking at with the most
interest: the gross margins of major pure play e-tailers during the
holiday season. I'm not as concerned about their top-line sales, which
may not be that good. What's really important is their gross margins.
Are they moving on that path to profitability? If they are, I think it's
a very good sign for the entire sector. If they are not, I think we're
in for some more churning for another six months or so."

Regardless, Miller is an optimist about the long-term health of
dot-com business. But he also thinks those companies that have been
living on promises for the past two years will need show signs of
movement toward profitability, and probably pretty soon.

"No one should expect to build an industry overnight," he said. "But
they should expect to see signs that there is ability for businesses
to become profitable at some point. Call me crazy, but why wouldn't
that be a good thing?"