Wanna buy a used server?
Dot-coms are dropping from the sky this month like ducks
during hunting season. Last week, I mentioned boo.com's
shutdown. This week, the Disney-backed toysmart.com shut
down. The medical site drkoop.com is widely said to be in
dire straits, and even CDnow's ample fan base may not be
enough to keep the site spinning.
The list of suspects in this serial cybercide is not short.
You could probably blame Alan Greenspan for part of it; the
Fed's persistent raising of interest rates over the last
several months seems to have finally tamped down markets'
voracious appetite for risk. The dot-coms themselves, of
course, shoulder significant blame; the number of
insupportable business plans backed by bad management
floating around continually astonishes me. And venture
capitalists play their own part in the merry pageant,
putting money into businesses with about as much caution
and planning as they would placing chips on a roulette
wheel.
I mean, really. A plan like boo's -- selling sportswear in
more than 30 countries using a high-bandwidth customized
Windows-only interface -- was so spectacularly ambitious
that it would have required an iVillage-sized pool of cash
and a GE-sized pool of management talent. Instead, the site
ran out of money shortly after it launched, and its main
backers (big international luxury goods manufacturers)
didn't have the fortitude to weather any air pockets.
And it appears that toysmart also grossly underestimated
the amount of money required to build the loyal repeat
customer base that any retailing operation need to survive.
I recently pulled down some numbers on e-tailers that are
so revealing that they shouldn't be relegated to the Win
Letter numbers. The Boston Consulting Group found that
e-tailers spent $82 last year to win a new customer.
Offline companies spent $12. E-tailers spent 119 percent of
their revenues on marketing. (No, that's not a typo.) Only
27 percent of the typical e-tailer's customers are repeats.
The figure is 34 percent for stores. So stores spent
one-sixth of what dot-coms spend to attract customers, and
more of the store's customers come back.
From those figures, it looks like this week's pain is just
the start.