Skip to main content
CNN.com   technology > computing
SERVICES
CNN TV
EDITIONS

Q&A: Analysts discuss the dot-com layoffs

Chris Shipley is founder and executive producer of the DEMO Conferences, and editor and publisher of the DEMO Letter. Each year she researches and interviews hundreds of companies, choosing a few dozen that are forerunners in emerging technology for the consumer market. In past years DEMO exhibitors have included Java, the Palm Pilot, Tivo, and Replay TV. She's covered the personal technology business since 1984, writing for publications including PC Week, PC Magazine, and InfoWorld.

Scott Kirsner is editor at large for Darwin Magazine. He focuses on how organizations understand and adapt to new market opportunities. He's been a regular contributor to Darwin and CIO magazines since 1996. His work also appears in Fast Company, The Industry Standard, Wired Magazine, Boston Magazine, Salon, and The Columbia Journalism Review.

Scott Kirsner

graphic
Kirsner  

Question: An article in your magazine is titled, "Will the good dot-coms go down with the bad." Well, will they?

Kirsner: I think there are a lot of good dot-coms that are going down with the bad at this point. The bad dot coms, the ones that didn't have sustainable business ideas that couldn't figure out how to make a profit are definitely disappearing. And I think the way that they are bringing some of the good dot coms down with them into that vortex is ... the good dot coms find that they can't get more investors, they can't go public right now, they can't get more venture capital.

And so the money flow has kind of been turned off. Their air supply has been shut off as a result of people's fear about the bad dot coms.

Question: What is it about Amazon.com that everyone has attached such importance to its success and profitability? How did it get to be the canary in the coal mine?

Kirsner: Part of me thinks that people focus the same way on Amazon the way they focus on Oprah's weight. It doesn't really have much relevance but it's kind of a fun thing to watch, a fun thing to talk about. I think Amazon in some ways has become the canary in the coal mine just because it's one of the most prominent dot-coms. It's one of the oldest dot-coms, it's one that a lot of consumers are familiar with because they may have just bought a book or movie or CD from Amazon. So it really just gets this kind of landmark, bellwether type of status.

Question: Is it fair to make Amazon the bellwether of the industry?

Kirsner: I'm sure Amazon doesn't have everything figured out. This is a company that grew from zero employees to 8,500 employees in less than six or seven years. I don't know that it's fair to make them the bellwether of the industry because they are one type of Internet company. They are a consumer focused, e-tailer type of company. And there are lots of Internet companies, some that are doing especially well right now.

Question: With millions of customers and billions in sales ... how can there be hope for dot-coms in general if this one, Amazon, doesn't succeed?

Kirsner: There are lots of software companies, back-end software companies. that run the cash registers at e-commerce sites that happen to be doing really well. There are all sorts of Internet infrastructure companies that consumers don't know about that are able to survive and do well, so in that sense, Amazon is just one slice of the whole Internet industry.

Question: Amazon's leader, Jeff Bezos, says he expected all along that there would be a very long "plant and fertilize" period before the company could "harvest" any profits. Was he right, and do investors and dot-com watchers just have to sit back, shut up, and wait a little longer?

Kirsner: I think they're getting increasingly impatient with farmer Jeff and his plant and fertilize strategy. The way that I look at it, Amazon and a lot of Internet companies over the last few years were using money like rocket fuel. And the investors said, it's okay if you use this money like rocket fuel, just burn it in order to acquire customers and build your brand name, and don't worry about where the money is going. So in the past year they've said hey, no more rocket fuel we want to start seeing some profits . And if you want to follow that metaphor, some of these guys haven't gotten out of orbit. Some of them will make it and some of them will really fall back to Earth.

Question: How would Charles Darwin rank Amazon.com's chances of survival?

Kirsner: I would have to say Charles Darwin would give Amazon decent odds of survival ... if he were still around. They definitely were trying lots of things and that's what Darwin believed, that species had to try lots of things to see what works. But now they're really in a phase where they have to start cutting back. They're doing that with the layoffs but also they have to start cutting back what they offer ... and become a much more focused company.

Question: What message should we take from Amazon's earnings report and layoffs?

Kirsner: The interesting message that the Amazon earnings and all of the dot-com layoffs are sending is you have to get on the path of profitability. That's sort of the yellow brick road for dot-coms these days, you have to get on the path of profitability and figure out how to make money and that's the message Wall Street is sending.

The "glass-half-full" and "glass-half-empty" thing about Amazon layoffs is, they may be laying off a thousand or so people and you say, that's a lot of people and for the people affected it's terrible. But then you have to see this is an 8,000 employee company and they've created all those jobs over the last five or six years. So is the glass full or empty? I think job creation is an important thing.

Chris Shipley

Question: What's your reaction to the AOL earnings report?

Shipley: I think we've got a period of over-exuberant optimism followed by a period of over-pessimism. I don't think we should look at this one set of results and suggest that the entire online Internet economy is fractured.

graphic
Shipley  

It is not a comfortable time for sure, but certainly with a billion dollars of revenue you can't suggest that the business is not viable.

Question: People look to Amazon as a sort of bellwether for all dot-coms. Is that fair?

Shipley: I think it's like any other business. It takes a lot of capital to get a business up and running, to create a brand and to establish yourself. And certainly those expenses will exceed the revenue at this point. But if you look to the long term and the popularity of the brand and services they are providing to consumers, you're going to see that they will be successful in the long term.

Question: How important was the fourth quarter holiday season for Amazon and other dot-coms?

Shipley: The fourth quarter is the best quarter for most retailers. And I think what we learned in the dot-com economy is, that's also true for them. You have to be able to serve your customers well. What we saw in the fourth quarter, a lot of companies that were not providing good service in '99, either got the bugs worked out, or actually came out of the market. And I think the experiences we saw this year, over the holiday season, were much more positive.

Question: Consumer confidence is at its lowest point in four years. Where does the online economy fit into that picture?

Shipley: You can't beat the drums of doom and gloom forever and expect that the economy is going to stay optimistic and consumer confidence will stay high. That's what we're seeing, is a reaction to the negative reports.

I look to companies and look at entrepreneurs... companies with great ideas and good technology and a viable plan for making revenue are still being very successful. They're being successful raising capital, and they're being successful taking their products to market. What I think we're seeing is a reaction to what I thought of as the "land rush" mentality of the Internet falling away, and a real return to basic fundamentals: business planning and business execution.

Question: But the fantasy world of unlimited venture capital is over?

Shipley: There was a period when any entrepreneur who could fog a mirror was getting funded. There was so much money in the market that venture capitalists were putting it to work in every possible sector, hoping that they would find something that would be successful. Screening and due diligence was at a much less stringent level than it had been. And I think that certainly has changed.

What we saw was a land grab, and you had to get out there early and fast, and spend a lot of money to be successful. That is not the case any more.

Question: Can small, feisty companies still get funded?

Shipley: A lot of companies are going to have a challenge getting venture capital, because the expectation is the return of investment will be significantly higher. I think small companies can be successful, but they're going to have to look for alternative modes of financing.

Question: What about the convergence of dot-coms and brick and traditional retailers?

Shipley: The brick and mortar companies have had a chance to observe what's going on in the Web-space and to understand effectively how to build in that market. Frankly, I think the brick-and-click model is one that will be very successful, because the Web opens up another channel for these companies to reach their customers..

Question: Will the death of some dot-coms continue?

Shipley: A lot of entrepreneurs start businesses because, say, they're excited about music technology, or they had a great dog and wanted to open an online pet store. Or a number of things that came out of their own passion and not necessarily out of a customer market. It was a focus group of one. I think what we see today is companies that really go out and understand the market and understand customer need, test and work through their product design and development with customers. So when they come to market they are meeting a fundamental need.

I think there are a lot of dead dot-coms along the road, and I actually think that's a good thing. We can focus on businesses that will be successful and that really do bring value to consumers. It is sad to see a lot of businesses close their doors, always unfortunate to see entrepreneurs out of work, but frankly, the chaff has been blown away, and what's left is a really strong foundation to grow.



RELATED SITES:
See related sites about Computing

Note: Pages will open in a new browser window
External sites are not endorsed by CNN Interactive.

 Search   


Back to the top