[thelist] bigger hosting - a trend? (fwd)

[Brian King]

I think that your synopsis of the dot com bust is exaggerated and rides wave
of the media blitz and sensationalistic reporting.  It really takes getting
into the nuts and bolts of each case of failure to determine why they
happened.  There are nearly as many instances of failure due to too many
players in a market place as bad business models.  I will give you Webvan,
but others are not so simple.  One example of how that works, that most may
be familiar with is Amazon.  They have a nice big beefy system to server up
their transactions.  We all know that Amazon has yet to turn a profit.   The
main part of the problem for Amazon has been their fixed overhead in regards
to the cost of purchase and maintenance of the servers.  As their number of
transactions increases, that fixed cost is divided up amongst a greater
number of real transactions.  Currently, the cost per transaction is greater
than the difference between the mean sale price and wholesale cost of the
items.  Amazon projects its potential profitability forecast using this
method, (simply put when the number of customers reaches a predetermined
number), and it is widely accepted as an accurate forecasting method.  Where
is the fault here?  Is this a 'bad' business model?  I don't think so.  It
is merely the results of capitalism.  If Amazon can't attract enough
customers away from other online vendors, of first time web purchasers, then
they will fail.  If They attract enough customers, then they succeed.

I think that the media is far to quick to say 'Bad business models' caused
the failures, when in a lot of cases it was simply that the market place was
too crowded.


-----Original Message-----
From: thelist-admin at lists.evolt.org [mailto:thelist-admin at lists.evolt.org]On
Behalf Of martin.p.burns at uk.pwcglobal.com
Sent: Tuesday, January 08, 2002 1:39 PM
To: thelist at lists.evolt.org
Subject: Re: [thelist] bigger hosting - a trend? (fwd)


Memo from Martin P Burns of PricewaterhouseCoopers

-------------------- Start of message text --------------------

Hi Dan

While I do think that smaller sites, growing organically are now
getting bigger (and that's true of both commercial and non-commercial
sites), there's a couple of other factors which are in play:

*) As you noted, many of the dot-bombs, developed by people who
   didn't know what they were doing in business terms are crashing.
   Because underneath whatever the site was, they just didn't have
   a business model worth anything. Boo were the first ones to go -
   and deservedly so. People who are crap at running businesses
   shouldn't run businesses, whether they're online or not. And advertising
   as a main revenue model is just daft in nearly every case.

*) A lot of existing large companies who were cautious in the dot-com
    era, putting out wee test sites, or no site at all, are now starting to
    really think through whether it makes sense to do business using
    online channels. For some, it will. For some it won't. For some, it
    might, so it's worth testing. But that's business as usual, and as
    usual, it's the existing big companies who have the money and the
    patience (ie they don't have to please VCs) to win in the end.

   To give a couple of examples: 'Pureplay' online banks like First-e
    failed. Online banking offered by mainstream banks (and by
   subsidiaries of mainstream banks, like Egg) are now succeeding.
   Pureplay, distribute from the centre online shopping companies like
   WebVan failed. Established supermarkets who can leverage their
   economies of scale and existing distribution network like Tesco
   are now profitable.

*) Sites run as a labour of love don't *need* to cover their costs. So
    they'll keep going long after the point at which a commercial site
   would have been quietly taken out and shot.

And of course, Internet sites aimed at consumers are only a small
part of the pie, as mentioned in my reply to Peter earlier. I've worked on
projects where what the public sees is only the toe of the elephant.

Cheers
Martin