Slowing Revelotion Essay, Research Paper

The Slowing Revolution

Technology, a progressive tool in the last decade! Every day technology influences many Americans in their daily living, from cell phones, microwaves, CD-players, home personal computers, to lap top computers technology has made the American standard of living easier and convenient. In the last decade technology has affected many components in our American culture. The President of the United States Bill Clinton has deemed one of these components as the New Economy . The New Economy is the information technology revolution that has changed the way America does business, and has changed our market and others around the world. Can the market depend on the information technology revolution to be as prosperous in the future?

What factors contributed to the New Economy ? In the early 1990 s technology was knocking at the doors of every American s home. Affordability and convenience is what lead to the rebirth of the economy. Personal computers or PC s for short were much more obtainable in the early 90 s, with more Americans with computers in their homes Americans became one with technology. The growing popularity of PC s led to the biggest benefactor in our economic revolution, the Internet.

Today the Internet is household terminology; daily business of all sorts is performed on the Internet by all ages in the world. Users can access personal mail through e-mail, read headline news, research anything, and shop for goods and services from the comfort of home. Around 1995 the Internet Boom was recognized, the Internet became a huge shopping mall for consumers. According to Paul Kedrosky writer for the Wall Street Journal, there is an estimate of 10 million web pages on the Internet . This immense amount of growth in the Internet industry has been a key element in our economic prosperity. Many businesses have had significant gains financially in the dot-com industry (dot-com being the end part of a registered Internet business domain name), though the industry presently takes a spiraling down fall.

How can companies are so prosperous three years ago, but presently companies struggle to stay on the Internet? First one must understand what companies in the industry are struggling and even failing. John C. Dverak writer of Forbes.com categorizes what types of businesses are struggling to stay in business:

+ Common Search Engines: The first to emerge from the rollout of the Web. These operations were host to other e-companies, so consumers could access companies through a search process. Income source was primarily advertising.

+ Content Sites: Hybrid companies using broadcasting and content to sell over the Internet.

+ Auctions: On-line auction houses offered to the public. Any thing and every thing have a bid price.

+ E-tailing: Actual modern versions of the catalog business without the catalog. E-tailing is comparatively amateurish.

Reasons for distress presently in dot-com companies is the over saturation of similar business on the Internet There are websites selling the same products at the same level of service and essentially the same name. For consumers it is difficult to tell on-line companies apart! Much of this type of competition affects the E-tailing sector in the Internet industry. Companies strive to keep costumers returning and not go a stray to a rival company. Though saturation in the market is killing off dot-com companies saturation does benefit the consumers. Consumers have the upper hand in finding a good deal on the Internet for goods and services.

On-line competition is a huge cost for dot-coms. The main weapon in the dot-coms arsenals is marketing. Marketing is an essential for any business, purchasing ad space in newspapers, magazines, billboards, also in radio and television commercials in hope of promoting the business. Marketing is a costly factor of a company strategic plan to succeed. It is predicted that on-line companies will go to any extreme for exposure, advertising sales are expected to reach $2.1 billion online, and package-goods advertising is expected to hit $1.1 billion, up from $300 million and $100 million, respectively (CNET). One form of advertising and the most popular are the banner ads, advertisement space on other WEB pages. This form of advertisement is probably the most commonly used by the dot-com companies and the most ineffective. Since such ads debuted around 1995, this so-called click-through rate has plunged from an industry high of 10 percent to about 0.4 percent, according to Nielsen/NetRatings (Olsen). The decline has caused some of the largest Internet companies to race back to the drawing board for more effective formats.

Many E-tailing companies on the Internet spend more on advertising than what they have in returns resulting in negative gross profit margins. A company’s gross margin is the difference between the amount it charges customers for its goods or services and the amount it pays suppliers for those goods and services. Having negative gross profit margins essentially meant that E-tailing companies lost money on every item it sold. Currently resulting in a massive death to dot-com companies.

In the beginning of the Internet boom, venture capitalist swarmed to invest in the newest and supposed best dot-com business. Hundreds of up start companies looked for financial support for their virtual gold mine, and many of them received support. Literally hundreds of companies were financed since the 1995. According to Nick Wingfield, staff writer of The Wall Street Journal, Venture capitalists have invested $4.6 billion in Internet retailers since 1997 . This massive interest in the Internet has been a huge moneymaker and gamble to investors especially since it wasn t certain how the on-line companies were going to react in the market.

Why were so many capitalists investing in on-line companies? There are many reasons why; the Internet and on-line business became vastly popular, technology the pioneer in the New Economy was growing at an alarming rate and most of all personal interest. Investors make decisions on personal interest to make money.

+ Example, the funding came fast and furious once the market began to support premature I Po s under the guise that this was letting the deluded public invest in early stage financing by letting them buy 50-cent stock for $17 per share. It didn’t hurt that a $17 IPO would often jump to $100 on the first day of trading, making that $17 look like a bargain. That same stock is selling for 80 cents today.

Venture capital firms made hundreds of new public companies possible over the last three years by providing initial financing. They smelled easy opportunity and leapt. Rather than actually fostering a new company’s development, venture capitalists could simply fund almost any online-based company, take it public quickly, and sell into the buying frenzy. This trend left many venture capitalists rich and long-term investors out of luck.

When the venture capitalist cashed out many on-line companies resorted to relying on additional public capital to fund the long process of becoming a sustainable business with a meaningful customer base. This transition also resulted in the downfall of the dot-com industry. This short-term mentality during the Internet’s gold rush led to the following devastating chain of events with dozens of online-based companies:

1. A questionable business model quickly received millions of dollars in venture capital funds to get started.

2. When that seed money was spent, typically quickly, another round of financing arrived, mainly to help get the company to the public market.

3. Within months, the young company wobbled onto the public market.

4. Once the company had been public a handful of months, public shareholders shouldered nearly all of the risk, as the venture capital firms bowed out forever.

5. Many of these companies, not surprisingly, failed or will fail, often by simply running out of money. Since the companies went public too soon and spent money too quickly, we’ll never know which ones could have grown to become viable businesses under saner, more patient conditions.

Dot-com companies aren t the only one to be tarnished. The best and the brightest at venture capital firms around the country like Hicks, Muse, Tute & First and Kleiner, Perkins, Caufield & Byers have to suck up some major losses for their ill-advised investments in the dot-com industry.

The New Economy is finally slowing down; investors and companies try evaluating an exaggerated market. The future for dot-com companies is already noticeable recent collapses will decrease the amount of dot-com businesses on the saturated Internet. There will be less consumer options on the Internet with recent closures of companies, but realistically it will take many company failures do even dent the immeasurable amount of businesses on the Internet. Leaving more than enough means of business to meet consumer needs.

The technology sector of the market is interlinked, with failing on-line companies we can expect to see losses in the whole industry. As we have seen investors, consumers, and obviously the on-line companies will have and have had losses, but losses are expected to expand to business to business.

Dot-com spending has fueled the growth of online advertising. These companies that provide these services like Doubleclick and Engage are going to suffer billions in marketing capitalization, with share prices off more than 90% over the past eight months (Kedrosky). The people who build dot-com websites are also going to endure substantial losses companies like Raxorfish, Organic, and Northstar hosting. Since the ill-fated trends investors are not likely to fund start up companies as they did in the past creating less demand for web designers. The most traumatic affect on the industry is the infrastructure providers; companies like Dell, Oracle and Sun are exposed to the dot-com plunge. Hosting sales for these companies have plummeted recently as dot-coms sites pack up and call it quits

Recent collapse of dot-coms threatens to remove major spending from the information technology industry. It remains to be seen what companies and what markets will stand with out the spending.

Works Cited

Fisher, Jeff; Why Peets.com Died www.fool.com,

Rule Breaker Portfolio, November14 2000.

Dvorak, John C; Flawed Thinking And Dot-Com Death .

www.Forbes.com, November 15 2000

Kendrosky, Paul; Dot-Coms Won t Die Alone .

The Wall Street Journal; Tuesday, November 14,2000

Dow Jones& Company Inc, New York, 2000.

Olsen,Stefanie; Image is everything as dot-coms cozy up to advertisers

www.CNET.News.com, November 14, 2000.

Wingfield, Nick; Dot-Com Liquidator

The Wall Street Journal; Tuesday, November 14,2000

Dow Jones& Company Inc, New York, 2000.