DOT Com Crash
...non, as people seemed to associate any new and exciting technology with making money. Everyone seemed so impressed and excited by the new technology of the Internet that they failed to see any problem or negative aspects of it. Yes, technology is a wonderful thing however without finding out everything you can before putting millions of dollars into it is a huge mistake many people made during the dot-com boom. “The Internet makes it cheaper to design products remotely; reduces the need for vast inventories; provides a better means to target, communicate with, and service customers; cuts the costs of delivering many services and entertainment; and helps companies remove layers of bureaucratic fat” (Litan, R., 2001). Technology therefore changed the way companies do business and this is why the dot-com phenomenon took off as companies were seeing new ways of doing things and communicating with customers. Adopting new technology is not an easy task and company’s goals should be to “to automate all processes as much as possible while maintaining personalized human interaction at the same time. Implementation of technology following conventional time-tested principles like dedication and expertise in an adaptive, dynamic environment is what is required (Anajana, C.S.). Technology like the Internet combined with companies and investors overexcited and under prepared attitude to the new technology are what encouraged the dot-com phenomenon. What The Dot-Com Boom and Crash Says About: Individual behaviour During the dot-com boom individuals got so wowed by the idea that they all followed each other. Showing that they may be individuals but not independent. People would hear of one person’s investment and soon they too were doing the same thing without even looking into the details themselves. Individuals were very gullible and got so caught up in the excitement of the new technology that they were blind to what was really happening. The dot-com boom seemed to catch everyone in its grasp and then all of a sudden crashed and let them go, just now they were millions of dollars lighter. Commercial behaviour The dot-com boom had many companies jumping in to have a piece of the capital market and getting the money behind them was easy due to the fact investors were caught up in the hype also. Companies thought that technology was the answer to all their problems however they did not research into how it was going to work for and benefit them specifically. They were greedy, spending more cash they were bringing in and ignoring the fact there was no profit, having no respect for their investors. What companies had forgotten was how to really do business. The dot-com crash was the end for many companies however it has also taught those companies and others a lesson. “In the aftermath of the dot-com euphoria, company directors are now extremely focused on return on investment (ROI), discounted cash flow and profitability. CEOs are forced to focus on business fundamentals rather than building value in the capital market” (Tong Hai, T., 2002). The customer needs to be the focus, its all about satisfying the customer no matter what technology you have it needs to be used correctly to suit your customers needs. Investment behaviour Investing during the dot-com phase was done without a second thought. All rules were thrown out the window and no questions were asked just millions of dollars thrown into companies that didn’t know how they were going to make a profit. As discussed earlier people gave up their jobs to sit at home and play with the stock market, investing in this company, then that, then this without even blinking an eye. Finally investors woke up and wanted to see a profit in these dot-com companies and when they couldn’t share prices fell dramatically. Since the dot-com crash investing has seemed to establish its rules again and “sound investors are again patient and disciplined when waiting for the right investment opportunity” (Simpson, T., 2001). There is now a stricter approach and investors proceed with caution to make sure the company they are investing in is a worthwhile and concerned with making long term profits not just quick cash. Dot-Com Business Models: Unworkable Model “A business model (also called a business design) is the mechanism by which a business intends to generate revenue and profits. A Business model is a summary of how a company plans to serve its customers. It involves both strategy and implementation” (Wikipedia). How successful a company is depends on how well the business model they use matches what the customers needs and wants. Yahoo Yahoo is a search engine directory that is classed as a free access information website. “The "operating system" of the net and a site for evolving search engines, free news and information services, online ads, banner ads, sports and news, video and audio, clubs and auction stores has become the most popular directory in the web” (Anajana, C.S.). However Yahoo is only just hanging in there and although they aren’t seen as totally unsuccessful yet, their business model could be seen as an unworkable one. “BPI (Buying Power Index) report reveals that more online buying and popularity of a site don't go hand in hand. Other search engines like Altavista, Excite and Juno seem to have raked in more profits recently” (Anajana, C.S.). This shows that even though Yahoo is considered to be the most popular the company itself isn’t reaping any profits to show it. Yahoo provides large amounts of information for users for free and links them to other sites to access even further information. For Yahoo to provide this service for free they rely on advertising for revenue. “If your site receives enough visits – or hits – then the other companies will pay to advertise their goods and services. Yahoo generates 90% of their revenue from online advertising” (Advertising Based, 2003). This is where their problems started with their revenue solely coming from advertising. They didn’t research into what advertising would work online and as they received almost instant popularity they didn’t develop any other aspects of e-business. Yahoo was forced to cut budgets and advertisements showing that the company’s lack of research into what actually works are finally catching up with them. A study by Booz Allen & Hamilton showed that internet users spend three times more time on sites like Yahoo than on shopping sites like E-Bay and Amazon. However this is due more to that fact that users see Yahoo as a free information service and as a directory to other sites therefore the advertising banners on Yahoo are not actually been used. Advertising is measured by click through rates an if the advertisers do not see a high rate then they are not going to put their money into that site to advertise their product or service. (Advertising based, 2003). Therefore using an advertising business model requires a lot more work and customers and users need to be continually satisfied and impressed by your site so as to click on the advertisements and increase the revenue coming into the company. E-Commerce After The Bubble E-commerce is commerce accelerated and enhanced by IT, more specifically the Internet. These new technologies allow people all over the world to develop new and successful relationships (Haag, Cummings, McCubbrey, 2002). During the dot-com boom it seemed everyone new where e-commerce was heading then it all crashed around them and no one knew what was ahead. Although people seemed to have learnt from the mistakes of the dot com bubble and instead of returning to the old ways they now see e-commerce as “ a fundamental, long term, strategic business direction, rather than a tactical, short-term reaction to changing client demands” (Israel, C.). E-commerce if anything benefited from the bursting of the bubble as it’s popularity continued to grow after the dot com crash. Even though investors and users were a bit more wary after the crash it hasn’t stopped them in the long run. People cannot escape from the world of e-commerce as it impacts nearly everyone today. Nearly every business is involved in some type of online activity or new technology and in order for customers to do business with them they too will participate in the use of these new technologies. Companies are still based on profits and the buying and selling of goods and services however technology like computers and the Internet allow them communicate all over the world, with anyone and try new ideas all the time. E-commerce can create e-commercial opportunities for businesses like e-tendering, e-procurement and project collaboration which can help to lower marketing costs, shorter cycle times, sharing of data and better project team working. However this still comes with the concern about security and privacy and is not totally full proof as yet. “The rapidity of change is the real threat to the unprepared. If you do not match the speed of what is going on in IT and e-commerce your company may not survive” (MPA, 2001). If companies are more careful and more knowledgeable with their use of new technologies and the Internet while still retaining the customer experience they will be more successful in their endeavours to increase profits and therefore assist in the continued growth of e-commerce. New/ Successful Business Models A profitable and successful website depends on: • Develop a unique web site • Control the product line • Introduce new products on a regular basis • Ensure easy and reliable credit-card payment methods • Provide customer-friendly policies • On-time delivery • Keep promises • Develop a clever marketing strategy • Be the best in your field (Anajana, C.S.) To put it simply those who survived or who are succeeding is because they know what they are doing, they ask questions, they worry about details, they involve their users. These successful dot-coms know their market and make their users a priority by making the site simple to understand, having secure site facilities and developing a good relationship with their users, which encourages them to return. There are various models in which a company can successfully do all of this. Such as subscription based, sales based and advertising based. Each has its advantages and disadvantages but the key is for companies to find the right one for them and their users. Companies need to do more thorough and specific research into the business models that will suit their needs and the best way of doing this is through using a combination of business models. Sonia Lo, co-founder of Ezoka.com explains further: “You have to work out your model on several levels. Find something truly innovative to place online, make sure that the marketplace is big enough to slot your company in and sustain three or four companies of the same type. Then, make sure you have a solid and fully qualified and experienced management team, as their expertise will be crucial in the long run and finally, time your entrance to the market” (E-commerce site, 2003). A survey of business models used conducted on the United States and Japans businesses shows that the most used is the sales based model in both countries and that a lot of companies incorporate multiple models to succeed in the dot com world. (ECOM Journal - US V JAPAN) The graph below shows the success factors related to domestic sites. It is a good indication the success of sites lies on the customer’s satisfaction with the products and response to the customer needs. Two companies that survived the dot-com crash due to their successful business models are E-Bay and Amazon. E-Bay E-Bay is a global auctioneer that is subscription and transaction based. E-Bay captured its users well and developed a good relationship with these users. Therefore they kept coming back for more. Using a subscription-based model is about creating information for others to look at, buy or allow users to sell to others. The users of the sites do all the work rather than the company itself as the users enter all the information and transactions online themselves. E-Bay has created such a successful site that it had “profits soaring to almost 400% and revenues doubling in the past one year and has 29.7 million registered users today” (Anajana, C.S.). It has created a whole new world of auctioning that allows people from everywhere to sell and buy absolutely anything anywhere which makes it unique differentiating it from other sites. Their business model can be summarised as: 1. “Automation of traditional methods of selling unique items 2. Reliability in mode of payments 3. Customer friendly company 4. Professional services in addition to just plain selling of goods 5. Global reach 6...