Jewish World Review Nov. 10, 2000 / 12 Mar-Cheshvan, 5761
http://www.jewishworldreview.com -- IN CYBERSPACE nobody can hear you scream. Which is a good thing because the dot-com world is rife with more carnage than the scene from "Gone With the Wind" where all the bodies are laid end to end. It's difficult even to get an accounting of how many Web business have gone with the wind.
The Wall Street Journal's online companion, WSJ.com, runs a tally of the carnage to date, called "Counting the Bodies." APB Online and Value America are in bankruptcy. This week, furniture.com announced it was going under. Auctions.com ceased operations in August. Textbook seller, Bigwords.com, went to the big remainder bin in the sky in October. Living.com isn't.
The Journal's body count list includes more than 80 firms that were expected to capture the world - WebMD, Food.com, Boo.com, Egreetings.com, Firstlook.com, Garden.com, Pseudo.com, Urbanfetch.com -which are now either filing for bankruptcy or laying off huge numbers of their employees in a frantic attempt to avoid bankruptcy. The most disturbing repercussion of all this - obviously - is that my stock portfolio has suffered.
But the relevant question for right now is, why have so many Web ventures gone under when the Web itself is surging? Over the last year or so, firms like Oracle, Cisco, Broadcom and EMC (some of which I own), have thrived. That's because they make the levers, pulleys, pneumatic tubes and other gizmos that make the Internet run. Every year, millions of people go online for the first time.
This seeming contradiction is best illustrated in the trajectory of Internet advertising. Few sites that rely solely on advertising have been able to survive, and almost none are prospering. Shares in DoubleClick, the Web ad sales firm, have dropped from $135 to $8. And yet, the ocean of advertising dollars is swelling. In 1996 Web advertising was a mere $176 million. Last year it was $3.6 billion, and Lehman Brothers Inc. estimates it will be $32.3 billion in 2005.
So, what explains the fact that this rising tide seems to be sinking so many boats? Well, every company succeeds or fails somewhat on its merits, but there's an obvious lesson: Cyberspace should not suspend common sense.
In the world of e-commerce, the Web zealots seemed to believe that human beings wouldn't want to, say, try on their clothes before they bought them. They were convinced that people would prefer to purchase their food in large amounts from faceless establishments that they'd never heard of.
When it came to Web advertising, the zealots didn't realize that the whole idea behind banner advertising requires people to leave a site where they want to be, so they can go to a site where they don't want to be. It's like expecting TV viewers to channel surf so they can see the most commercials possible.
One rule of business is just as important in the three-dimensional world as it is in the land of ones and zeroes: Branding is crucial. People are delighted to buy clothes from the Gap.com or JCrew.com because consumers are already familiar with their products.
People are comfortable buying things from places they know and trust, and brand names are shorthand for that trust. At the same time, companies like Gap and J Crew already own inventories, stores, marketing staffs, etc. Building a Web site is the easy part.
When the telephone was invented, it provided a huge advantage to the first store that had one. It could take orders for home deliveries, reservations, etc. But once everyone has a phone, there's no (ital) comparative (end ital) advantage to having one. A store without a phone would probably go out of business. These days everyone has a Web site, and one day soon a store without a Web site will be at a similar disadvantage.
This applies to journalism, too. There are thousands of news and commentary sites on the Web. But most people don't trust "Joe's House of News and Info.com." News consumers want to know that what they're reading is reliable.
So while there has been an explosion of e-journalism with a handful of newcomer successes, like Matt Drudge, the bottom line is that the old name brands are the real winners. WashingtonPost.com, NYTimes.com, MSNBC, all have the luxury of brand names.
Sites like Salon.com and Slate had to spend millions on building a brand name or live off the largesse of a huge multinational corporation like