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'Net Insider:

Is it safe not to go into the water?

By Scott Bradner
Network World, 05/21/01            

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 telecom companies - has 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 was real money once upon a time.

At least some of the telecom companies have physical assets that have a half-life of more than 6 months - millions of miles of fiber have been installed just in the U.S. over the past two years. To be sure, most of it is unused - 97% by some estimates. But at least fiber's something that doesn't generally become worthless with the next hardware revision, like old servers and routers do. E-commerce companies such as e-Toys, 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 came from 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 one's corporate existence wiped from the electronic face of the world by some virtual superstore.

According to the Times, $10 billion was spent last year alone on Internet consultants, much of it to prevent Amazonization. Billions more were spent starting overhyped Web sites.

For example, Toys "R" Us is said to have spent $260 million on I didn't know it was possible to spend that much money to get so little - so little that now when you try to visit, you get Yup - Toys "R" Us 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.

Still, 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 with physical stores not to run a catalog business. But if a company already has a reasonable infrastructure, it can make some money from people who happen not to live near a store.

The same is true with the Web. A Web presence may still be a smaller overall business than catalog sales, but if the current - realism-enhanced - trend continues, the Web business 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 tens of millions of dollars getting there. But for some reason, the consultants are getting cheaper these days.

Disclaimer: It's not getting cheaper, but spending money on Harvard seems to pay off. However, the University has not expressed a view on this topic.

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