Internet Essay, Research Paper

Yesterday, the recruiting firm of Challenger, Gray & Christmas, Inc. released a report stating that 8,789 jobs in the Internet industry were cut during November. And the month isn?t even over. Today, Internet consulting firm iXL announced that they would eliminate 850 jobs. Additionally, a four other Internet companies announced cuts totaling 100 jobs. After busting through the 4000 mark earlier this year, the tech-heavy NASDAQ ended the day hovering just above 2600.

I get questions all the time, from within the industry and outside of it, as to what exactly is going on. There are some simple answers, and some difficult ones. Let?s look at some of the simple answers in general terms:

Internet advertising has failed: There is too much advertising inventory and not enough advertising to go around. Content and consumer oriented online service companies (i.e., online storage sites, community sites, etc.) that rely on advertising revenue haven?t been able to maximize advertising space beyond the banner. In the beginning, Internet advertising was hailed as performance based. Companies would have the ability to track how well their advertise performed. Now we know that banner ads have failed miserably. The Internet is a branding opportunity, a place to create awareness. It is a medium, like television or radio, where advertising has never been performance based, but based on the amount of people you will reach regardless of whether they pay attention or not.

A company with no tangible assets is worth nothing: Well duh. When all is said is done with a company, if there?s nothing besides some low-end PC?s and a few servers to liquidate, the company wasn?t worth anything to begin with.

Everyone?s selling and no one is buying: Ever been to an Internet trade show? You?ve got a couple hundred companies selling worthless products and applications and no one?s buying them. These companies give you a variety of reasons why their product will increase your revenue. The end result however is that the majority of these reasons are tied back into pushing out more advertising by using their product. The consumer will usually find a product like X-Drive or a web-based email account like Hotmail without having to utilize the application through a ?co-branded partner site.?

Scalability: Technology companies for the most part don?t have a clue how to create a product. The first version usually is enough to impress investors and potential clients. The second version has bells and whistles added. But then the fun comes. Find a client who can utilize the technology. What we?ve found is that either the back-end of the product isn?t scalable or the front-end isn?t scalable. And in the end, if you can?t scale, you gotta bail.

E-commerce is a losing proposition: Why do non-e-commerce websites add e-commerce to their offering? Companies whose sole business model is selling products online haven?t been able to make money, what makes you think you can create revenue that way? E-commerce companies have the enormous challenge of creating a national identity overnight. Offline retailers usually take years to break out of being local or regional businesses. Case in point, Best Buy. The Minneapolis-based retailer took ten years to expand out of the Midwest. They just opened their first New York City area outlet this fall, and have recently made their first real push online. But no one looked at Best Buy?s example when six different pet supply companies launched online and tried to capture a national audience, and failed miserably.

Revenue Sharing: This was the catch phrase for a time last year. Everyone wanted to do a deal based on revenue sharing. But no one ever figured out where the revenue was going to come from in the first place.

The Burn Rate and Path To Profitability: How does a company burn through $750,000 per month with revenues of $100,000 and expect to stay in business? There?s a simple answer, they don?t. The burn rate (the amount of money the company loses each month after revenues) has to be decreased and there has to be some plan to reach profitability. Is there time to overhaul the entire business model? Probably not. Keep the burn low, keep profitability within site and keep your head out of your ass. Not many people can do all three, much less one.

There are numerous other factors, the one?s listed above are fairly basic and obvious. Yet, if some people would have taken these things into account, there may not be another 8,800 or so people out of work. And their IPO dreams and Wall St. fantasies wouldn?t be replaced with a trip to the gutter.