Profit and pragmatism: e-commerce grows up

If there ever was proof that the climate of Internet commerce is changing, it’s’s announcement last month that it had finally turned a net profit.

The news, which “prompted observers to check to see if there were any snowballs in hell,” as described by an IDG News Service newsletter, shouldn’t really be news – if you think about it rationally. Maybe I’m a bit cynical about commerce, but doesn’t the whole impetus behind running a business have a lot to do with making a buck?

But, in fact, the news service observation illustrates well the momentous nature of this announcement. The fact that Amazon is turning a profit is a kind of bellwether for the industry. When I first started covering IT a few short years ago (which, granted, is a long time for this industry, due to the breakneck pace of change) was constantly touted as the quintessential e-commerce company. It was mammoth, it had international recognition, was practically a household word and even became part of pop culture. And it was not profitable.

Back in those halcyon days, the Internet was rife with fledgling e-commerce companies euphoric about the endless possibilities of selling their wares to far-reaching corners of the globe. Caught up in the hype, many gave little or no thought to how they were going to link their back-end inventory to their front-end processes, or ship products, or handle returns, or even if their systems had enough power to handle the new-found traffic. Buoyed by venture money and ridiculously inflated stock values, companies like this were reassured by the profitless Amazons of the world and took risks largely unheard of in the “real” business world. To say there was hype would be a great understatement: just ask any day trader. Well, you remember what happened next.

Most of us equate 2000 as the year of the “dot-comicide” (as one witty industry analyst coined it). However, last year the unfavourable economy injected an even stronger dose of reality into the still-then-inflated dot-com market. In 2001, at least 537 dot-com companies shut down or declared bankruptcy. This is more than twice as many as failed in 2000, according to a recent report by

Another once-hot Internet trend that seems to be falling out of favour is the notion of the e-marketplace. Even early last year, these marketplaces were thought by many to be the way the Internet was going. They were heavy on partnerships and personalization, but light on realistic business cases. Last month, SAP and Commerce One announced they were “rethinking” their plans to develop future online marketplaces for customers. And last May, IBM, Ariba and i2 ended their collaboration because they no longer believed that online marketplaces had a viable future. Another study by Gartner predicted that about 80 per cent of vendors which create Web-based customer service software will fail by 2004 due to the complexity of reworking outdated products.

This all sounds like bad news, doesn’t it? Well, maybe. But perhaps it’s a sign of a new, refreshing pragmatism in this space. An Internet business is still a business after all. The basic principles still apply, regardless of the venue. In fact, this new caution, to me, says that companies have the chance to be successful – if they get back to basics.

I happen to think that’s a good thing.

Balfour is Editor of ComputerWorld Canada in Toronto. She can be reached at