The future of dot coms is the subject of heated debate and the harsh lessons learned in the wake of the “bubble burst” several years ago still are rather fresh wounds for developers, economists, retailers, and just about anyone who thought that the Internet was the sure path to millions dollars in new sales and customers.
At the beginning of its heyday before Google was the Internet, the dot coms were the hottest real estate for investors looking for get-rich opportunities and a great deal of funding was pumped into thousands of websites offering a host of products and services. It should be noted that most of these initial companies did not survive. “Internet company managers did not have the business skills to take advantage of the opportunity of abnormal returns.
Financial analysts also contributed to the irrational exuberance by valuing Internet stocks according to real-option fundamentals, ignoring the absence of earnings” (Tokic 2002). In short, the high expectations had a tendency to override realistic interpretations of what the Internet and dot-coms were and would never be capable of. These tough lessons have, however, served the function of teaching new developers about taking risks and maximizing profits without such high investment. As a result, the future of the dot com is going to be (and is already starting to be) far less reliant on tangible goods and services and more open to the huge revenue potential offered by content-based dot-coms powered by free, powerful content management platforms, that offer free user-driven content that is accessible to all and that encourages user contributions and emphasizes the web publishers rather than the marketing team.
Because of the equally great potential offered by online advertising networks, these new dot coms see record profits that can often far exceed those seen by traditional online retailers offering real goods and services. Furthermore, since the content is freely provided by users, this new brand of dot com has very little overhead and a constant stream of new traffic and unique, relevant content. The combination of free user-provided content along with the large revenue potential of online advertising has set the stage for a new era of dot-coms. Still, before closely examining the new directions dot-coms are likely to go in the coming months and years, it is useful to look back at the “way things were” before the bubble burst in the early part of this century and offer a few insights about how these tough lessons learned have been applied to create a whole new concept of the dot-com.
At the beginning of its meteoric rise, just as it was finding its way into the homes of a majority of residences in North America, Europe, and Asia, the Internet began to “show its potential for reducing the cost of communication. Some people foresaw the death of distance, where geography would become meaningless for many economic activities” (Zhang 2006).This naturally led to the rapid developments of thousands of new dot coms, many of which, at this early stage in the game were selling traditional products and services online as opposed to (or in addition to) a general traditional storefront. With the world opened up to them, these early developers thought that since the world was simply a click away, they had the opportunity to immediate increase sales.
Unfortunately, this solution only worked for a handful of companies, many of whom managed to survive the crash (Amazon.com comes to mind, for instance). “From market highs in March 2000, Internet stocks had lost 85% of their value by April 2001. Out of 317 Internet IPSs only 16 stocks were trading above their offer price and only 9 above their first-day closing price” (Tokic 2002) and this, of course, led to a crash not only in economic terms, but the fall of the dream to reach millions of consumers as opposed to those available in a localized market. After this bursting of the dot-com bubble, everyone, from investors to developers scrambled to pick up the pieces and see if there was anything to be redeemed. Unfortunately, all that was left was enough room for those who survived and these companies went on to secure what funding they could to close out any possibility of competition from rival dot-coms.
Offering that brief history of the horrible crash of the many dreams and visions surrounding the dot-com is necessary because the mistakes that occurred then are not likely to happen again. “In 2000, investors were willing to buy an Internet stock on the hopes the company, someday, might have a breakthrough product—or any product at all—and make money. That was before the bubble popped. Now investors need to see real products, real cash flow, and real earnings before they’ll make a move” (Krantz 2006). In addition to the trouble with finding excellent funding, even several years after the fall of the dot-com as we knew it, the bubble bursting also has influenced the way new dot-coms have sought to emerge as leaders with little to no significant out of pocket expenses and in many cases, without offering a single product or service for direct sale.
As this examination of the future of the dot-com will be exploring in more detail, the results of the failed risks and giant losses have led many companies to offer content-driven sites rather than those offering a traditional product or service. These content sites based on revenue generated by Google Adsense and related advertising networks are often media and entertainment dot-coms with a steady supply of free content simply because of the fact their users are driven to the site and want to share. Prime examples of highly successful and lucrative dot-coms that fall into this category include sites such as YouTube, MySpace, and FaceBook. All of these dot-coms obtain content submitted by users and support the site through advertising programs that encourage users to click on text, image, or video ads, all with the ultimate effect of spelling out profits for the host content, media, networking, or entertainment site.
While dot-com bubble of the early part of the millennium certainly dampened the spirits of both creators and investors, there were still new websites cropping up that offered users a rich media experience. Supported, for the most part, by advertising sponsored by large search engines such as Google and Yahoo, the rise of the entertainment or media site offered a new direction for the dot-com. These sites offered experiences that were not aimed at attempting to sell a product or service as the high advertising revenue both provided the needed steam of cash to keep the site operational as well as offered the creators wealth not seen since the original dot-com millionaires. “When the dot-com bubble burst, so too did the grand plans to turn the internet into the TV of the future…however, new high profile projects suggest a renewed interest in watching original programming on PC screens” (Graham 2005). Emerging and veteran sites such as YouTube, for instance, were seeing far higher numbers of users and as a result, increased chances that their advertising would be worth a steadily higher amount. What these entertainment sites were (and still are) proving is that the future of the dot-com does not necessarily rest in the hands of traditional sellers of products or services, but rather, in the laps of those with the bandwidth necessary to support a large number of big files as well as millions of users.
In short, as opposed to the future of the internet being reliant on the location-less distribution of products and services for literal sale, “The scramble to entertain has unleashed the second coming of the dot-coms” (Forhoohar 2005). New dot-coms that are aimed at providing free sources of entertainment (sponsored and funded, of course, by advertising revenue from lucrative programs such as Google’s AdSense or the Yahoo Publisher Network) are particularly likely to succeed as more users seek fun experiences that do not involve direct purchases. Interestingly, the emergence of entertainment dot-coms as a leader in the new upswing in Internet profits comes as a result of several factors that were not present when the initial dot-com bubble burst. For example, “the majority (or at least a sizable minority) of the population in key markets in the United States, Europe and Asia now has access to broadband connections. So these graphic-heavy media sites actually work for many consumers. Second, online advertising has come of age and online ads now take in $14.7 billion per year in the U.S.” (Foroohar 2005). These two facts are incredibly vital to understanding why the new dot-com is based on a free media experience. The fast downloading and browsing capabilities offered to large number of users by broadband connections means that more people are more likely to visit sites that they might not have if they had to wait long periods of time for relatively short videos or music streams.
Furthermore, these users have quick download times and it might not always seem feasible to hand over money for a video that is less than an hour or so long. Additionally, these users have the capability to simply ignore the ads and take part in the media content experience with millions of other users. By providing a free service, these new entertainment-based dot coms are encouraging vast levels of participation as well interaction. In addition, one of the keys to the success of these new media enterprises that are redefining what is possible for dot comes, is the fact that users, as a result of their desire to participate in the exchange of media, are providing free content. In other words, sites such as YouTube, which is the dot-com miracle story of decade, only has to worry about paying for the general maintenance and upkeep of the site. It is the equivalent of a large popular store that never buys its own inventory, rather it is freely given by suppliers. In sum, sites that promote the free exchange of entertainment media of all forms (music, video, artwork, etc.) are poised, by fact of the voluntary participation of users, to be leaders in terms of profits and more generally, popularity (which converts to millions of users, which in turn means more possibility of “clicks” on advertisements, thus increased profitability).
The future of the dot-com is going to be heavily influenced by the continued success of existing media and entertainment sites and these are going to represent the new “goldmine” in terms of outside investments, particularly since so many investors are still remembering the bubble burst in the 2000-2001. Another lucrative market that has continued to develop significantly is a related entertainment site—the social network. Major dot-coms such as Facebook and MySpace boast millions of page views per day and like their counterparts at YouTube, they are entirely reliant on both free content provided by their millions of users as well as advertising revenues that keep their site free (not to mention vastly profitable).
On a related note, this large social and entertainment ad-supported networks are no longer creator-run enterprises. Nearly every single large website mentioned here is owned by one very large internet firm or company. YouTube, for instance, was recently purchased by Google for a record amount money and large-scale investors such as Rupert Murdoch have taken over the title as owner of MySpace.com. This bring up an important point about the future of the dot-com.
While the internet used to be a collective of individuals or very small companies creating web sites (either for traditional sales or entertainment) there is an increasing move for large companies to buy up sites that appear to be profitable, much as a developer would buy up real estate. While this is great news for the individuals and small enterprises in terms of seeing a large source of revenue from their hard work, ultimately, this is going to change the very landscape of the Internet. Just as with network television, a few large companies (with their own agendas, of course) will be the primary suppliers of entertainment and this, of course, leads a less open marketplace of ideas, opinions, and even advertisers in some cases. The possibility is, that in a few years, only a small handful of large corporations (similar to Viacom with the cable television market) will own major websites and the same limitations of this that are apparent with television markets will exist online.
While the general entertainment, blog, and social networking websites have changed the landscape of the Internet and perceptions of dot-coms and have proven that there very profitable options to a simple e-commerce site, this is not to suggest that the future of dot-coms does not include significant room for other more traditional websites. Although the bursting of the bubble brought many investors back to reality and many sites and their potential funding sources are far more cautious, there is still ample opportunity. The future of the traditional dot-com is not altogether grim. In fact, numerous sites, most notably in terms of travel, for instance, are still experiencing growth. For instance, new markets have opened to take the place of traditional selling platforms with things such as cars and homes.
According to many accounts, the auto retail industry has grown exponentially in the past several years and has proven that the dot-com, in its pre-bubble-burst sense, is far from dead. As an auto industry expert stated of the shift to dot-coms where there was not always a market for before, “There’s a major difference between the original dot coms and the new generation. The originals would spread their names online and through traditional advertising. The new sites, such as Newcars.com, generally get in front of the consumer through search engines such as Google and Yahoo” (Kisiel 2006). This marks another significant break with the way the old dot-coms used to drive traffic and business with their sites. The rise of creative SEO (Search Engine Optimization) marketing tactics has allowed many new dot-coms with creative and original content or services to succeed without traditional modes of advertising. Before the dot-com bubble burst, websites did not have the significant boost from major search engines such as Google that they do now. Not only is the search technology far more advanced than it was even two or three years ago, a high position means high sales or at least traffic to generate advertising revenue. For smaller dealers of cars, for example, Kiesel goes on to cite the fact that, “Currently, dealerships receive an average of 37 leads per month from independent, third-party websites, up from 33 in 2003 according to J.D. Power and Associates” (2006). In other words, creative content and SEO strategies are far more important than they used to be and are almost guarantors of some level of success if implemented properly.
In short, while there is still plenty of room left for more traditional sellers and service providers on the Internet, the new dot-com, one dominated by the prevalence of free interactive content that engages users, both in terms of their ability to participate and receive information or entertainment, is one that is aimed at securing revenue with advertising opportunities such as that offered by Google Adsense and other web publishing networks, not traditional sales. Again, this is not to suggest that there will be a decline in online retailers, but the same kinds of tactics employed by the entertainment, media, and content sites will also apply to these retailers. They will be forced to add ways for users to participate and to create ways of maximizing user experience (which ultimately leads to more revenue, either by new sales or ad dollars) and this is how the new dot-com will take shape.
References
Foroohar, R. (2005). A second coming of the dot-coms. Newsweek (Atlantic Edition), 146(13/14), 69-69.
Graham, Jefferson. Original programming smiles on dot-coms again. USA Today, Oct. 22 2005.
Kisiel, R. (2006). Dot-coms: The boom resumes. Automotive News, 80(2006), 1-2.
Krantz, Matt (2006). Dot-coms’ song and dance no longer entertains investors. USA Today, 02/02.
Tokic, D. (2002). What Went Wrong With the Dot-Coms? Journal of Investing, 11(2), 52-56.
Zhang, J. (2006). The Geography of the Internet Industry: Venture Capital, Dot-coms, and Local Knowledge. Economic Issues, 11(1), 115-117.
