Dot-Com shakeout clears landscape

Now that the dot-com craze has slowed down and the gold dust has settled, both start-ups and old-guard brick-and-mortar companies are in a better position than ever to incorporate the Web into their business models, several executives said Wednesday at BEA Systems Inc.’s E-Commerce in San Francisco.

As an example, executives pointed to the fact that this year there was as many as 400 auction Web sites and seven pet store Web sites. Since then, the market has undergone a shakeout, and only those companies with solid business models are the ones left standing. Another online pet store Inc., dropped out of the race this week.

Last week, the average Internet stock was down 70 per cent from its high, according to Roger McNamee, co-founder and general partner of Integral Capital Partners and Silver Lake Partners, both in Menlo Park, Calif.

“This is the best possible time for big companies to go after online opportunities,” said Marc Andreessen, chairman of Loudcloud Inc., in Sunnyvale, Calif. “This is also the best possible time to start a company, if you’re willing to build for the long-term.”

There are fewer distractions now than a year ago, good people are more plentiful for hiring, the maturing of technology makes it easier to harness for business purposes, and “kamikaze” business models are all but gone, Andreessen said.

From the customer’s perspective, the great dot-com shakeout has made it easier to understand which technologies are out there and how they can be used for business, said Oliver Dreschryver, CTO of DHL Airways, in Redwood City, Calif.

Previously, there were hordes of competing companies with technologies that were all too similar, which according to Dreschryver made it difficult to pick and choose wisely.

In the cases where customers bet on the wrong company, they found themselves stuck with an expensive product but no one to support it.

“I want to spend my time building business processes. I don’t want to spend my time trying to glue pieces together,” Dreschryver added.

Geoffrey Moore, chairman of the Chasm Group LLC, in San Mateo, Calif., said that the Internet gold rush got out of control because people thought of the Web as the most invest-worthy category ever. And that, along with a limited supply of stocks, drove up early valuations.

“We were thinking about scale instead of liquidity,” Moore said. “The correct move now is to redirect the race toward liquidity.”

As a result of the early valuations, entrepreneurs franticly sprinted toward the Web. Andreessen said that this get-rich-quick mentality negatively influenced the way people built businesses.

Whereas in the last two years or so, start-ups were considered failures if they didn’t achieve an IPO within nine months, that pressure has subsided, Andreessen said. Now, even Internet start-ups are faced with the tasks of making a profit, and delivering value to shareholders, he added.

“This signals a return to the old economy, where things like cash flow and profits matter,” Silver Lake Partners’ McNamee said “Putting a business on the Web is seldom successful in itself. If you want to Web-ify your business, you have to rethink your whole business model.”

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