title: Is it safe to not go into the water?
by: Scott Bradner
So the dot-com boom did just that. Not a fun time in VC-land. Not a fun time in Nasdaq-land. The Wall Street Journal estimates that just one component of the dot-com frenzy -- the telcom companies -- have built up a debt of $650 billion in the past few years, with the prospect of outright losses near $150 billion. No matter how you look at it, $150 billion is real money -- well, it <ital>was</ital> real money once upon a time. At least some of the telcom companies have some physical assets that have a half-life of more than 6 months - millions of miles of fiber have been installed just in the US over the last two years. To be sure most of it is currently unused, 97% by some estimates, but at least it's something that does not generally become worthless with the next hardware revision, like old servers and routers do. E-commerce companies like e-Toys, pets.com and hundreds more turned purely virtual overnight and wound up being worth a few cents on the invested dollar.
Many of the biggest investments in e-commerce sites were traditional companies trying to protect themselves from being "Amazoned," as the New York Times put it. The term was used to personalize the corporate angst over the possibility of having their corporate existence wiped from the electronic face of the world by some virtual superstore. According to the Times, last year alone $10 billion was spent on Internet consultants, much of it to prevent Amazoniation. Billions more were spent starting over-hyped web sites - for example Toys "R" Us is said to have spent $260 million on toysrus.com. I will say I did not know it was possible to spend that much of money to get so little for it. So little that now when you ask for www.toysrus.com you get Amazon.com. Yup - they got "Amazoned" in spite of the money.
With all this carnage is it safe for non-web companies to try to build a web presence? You can sure spend a lot of money for little return. I think the question should be turned around -- is it safe for a non-web company to stay that way? Sure it is. It is also safe for a company that has physical stores to not run a catalogue business. But if a company already has a reasonable infrastructure it can make some money from people who happen to not live near a store. The same is true with the web. It may still be a smaller overall business than catalogue sales but if the current -- realism enhanced -- trend continues it will be much larger in a few years. You can avoid the opportunity if you want to but it seems foolish. Not quite as foolish as assuming you need to spend 10s of millions of dollars getting there. But for some reason the consultants are getting cheaper these days.
disclaimer: Its not getting cheaper but spending money on Harvard seems to pay off but the University has not expressed a view on this topic.