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Excitement, name of the game

With the dotcom world going through a course-correction, Sandeep Dikshit writes on the issues involved and what it takes to emerge a winner in the new economy.

Well carved-out business plans for niche segments, reinforced by credible revenue models that forecast flows in the near future are critical ingredients for successful dotcoms.

The naive assumption that any company with a ``.com'' as a suffix will be successful was proved wrong...However, companies are now realising that being part of the revolution is critical.

GOD IS usually on the side of the big battalions. The ones with deep pockets and plenty of holding power. Right now that does not seem to be happening in the dotcom world. Even dotcom companies backed by big names are showing no signs of wiping the red smudge from their balance sheets while the small ones are lurching from one round of funding by angel investors to the next round. Is the scenario dismal or simply clouded?

``Right now big companies are betting big amounts of money on B2B and we are not sure it is going to work. This kind of revolution is a destroying revolution as much as it is a creating one. We have seen that enough times already. Getting involved means making a lot of bets,'' points out PriceWaterhouseCoopers' Mr. Robert Avila.

Right now the statistics about dotcom companies the world over are staggering. During 1999, more than a quarter of IPOs in the U.S. market were by companies that had a ``.com'' attached to their name. But during the first four months this year, some of that euphoria had vanished and dotcom companies accounted for 18 per cent of all public offerings. The decline is partly because the NASDAQ, the index for tech-heavy companies took a beating on April 16. The naive assumption that any company with a ``.com'' as a suffix will be successful was proved wrong.

The world of cyberspace is replete with stories of how shares were heavily traded just because a ``.com'' was added to the name. The Wall Street Journal reported that when AppNet Systems filed for an IPO under the ticker symbol APPN, investors started buying shares of Appian Technology which was listed on the Nasdaq under the same symbol. Appian's volume rose by an astounding 1.42 lakh times in two days as compared to 200 a day earlier.

``There are no mature Internet companies. The industry is no more than four years old. The super growth rates that some companies are experiencing will not last forever. They will level off. Investors are projecting these growth rates too far into the future. You will not find a researcher or an academic who will argue against the idea that these values are the result of a bubble. The bubble will burst. And no one knows what is going to happen next,'' says Mr. Raghavendra Rau, a Harvard don, who studied the dotcom phenomena with two colleagues and published a report titled ``A by any other name''.

In India too the ranks of those who want to ride the dotcom boom are thinning precisely because there is no good way of evaluating intellectual capital. Even the Securities and Exchange Board of India is facing this problem. The SEBI is deliberately taking its time in relaxing the listing norms of dotcom companies. The sense of apprehension is not confined to SEBI. Even consulting firms with strong overseas linkages are struggling to define the dotcom phenomenon. ``Valuing these high growth, high loss firms has been a challenge, to say the least; some practitioners have described it as a hopeless one,'' noted a McKinsey report.Venture capital firms which had enthusiastically backed dotcom companies in the U.S. last year and during the initial months of this year too have turned apprehensive. Many had backed the startups in the hope that they will recover the money once these came out with IPOs. However, after the Black Monday on April 16 in New York, many Indian dotcom companies have put off plans to go public. According to unconfirmed reports, one well known Indian dotcom company has already collapsed and, according to the joke doing the rounds in cyber chat rooms, the monitors there are being used as stools by evaluators. Many other dotcom companies could be on their way to the cleaners by the end of this year.

Officials with financial institutions which have generally backed dotcom companies say the survivors will be only those with well- carved out business plans for niche segments and reinforced by credible revenue models which forecast revenue flows in the near future.

The survival rate is likely to be better for B2B and B2C companies which have started on the premise that their application will result in businesses becoming more efficient and consumers straining less to buy products of their choice.

According to a recent study by Kurt Salmon & Associates, B2B will accelerate through the soft goods industry at a dramatically faster pace than previous new business solutions and its impact will be felt more quickly. Labelled a ``disruptive technology'' by Mr. Clayton Christensen in his book ``The Innovators Dilemma'', B2B advances are creating opportunities for companies to reinvent the way they interact with business partners. According to the study this activity in this area is different from that of horizontal portals in other areas.

Despite high expectations and the short timeframe of this massive change, more than 90 per cent of those surveyed lack concern about the timing of their B2B initiatives.

Executives are comfortable making incremental gains or taking a back seat until benefits have been proven elsewhere.

However, companies are now realising that being part of the revolution is critical. The only chance for ultimate survival is to get involved now and ensure that organisations are tapped into new supply chain networks.

What then is the future of dotcoms and how should this business be approached? ``Be prepared to have a good time. One reason kids are doing extremely well here is they are really in it to enjoy themselves.

And, if it goes bust, they'll do something else. You can talk about sizable amounts of money, but I don't know any website that costs $5 billion to set up, and so, the attitude has to be to go in and really enjoy what you are doing. To enjoy what you're doing, you can't go in and say, `My life depends on this working', because it might not.

Going in with the idea that this is going to be fun, is to go in with the idea that it is going to change, and it is going to change. Its a lot creative excitement, the market is changing around you, and so what seemed like a good idea on Tuesday proves to be a very bad idea by Friday, and you have to be willing to say, `OK, let's try something else,'' counsels well known cyber- tracker Ms. Bassett Laudi, in her seminal work ``Guarding dotcom investments''.

India faces another challenge - the low phone penetration rate. But according to the investment bankers Goldman Sachs, the wild card is the access to Internet through television. While this has not been very successful, Internet access via TV remains an unknown but potentially good opportunity in Asia because cost has been a factor in the low PC acquisition rate. Yet another dissuading factor has been the low access speed. This should be corrected within the next 12 to 24 months due to Government initiatives such as the Sankhya Vahini project, DoT's internet backbone project, permission to ISPs to buy bandwidth directly from international cable companies and permission to organisations like the Railways to sell surplus bandwidth to ISPs.

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