How will E-Commerce companies survive? (April 2000)

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How will E-Commerce companies survive? (April 2000) (Page 4)

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Author	Topic: How will E-Commerce companies survive? (April 2000)
wassup?	posted 04-06-2000 10:42 AM happyguy--these folks are all guessing. Especially when you are talking about who is going to go in the tank, you never can tell. "research" "conclude" and "decide" didn't work for me--especially research. He's just making an educated guess. lockin, maybe you can clarify these marketing/equity deals for me. Amazon takes a stake in these niche etailers, and the etailers use that to advertise where? everywhere? on amazon? and, besides the benefits of owning part of a (hopefully) successful company, what are the benefits to amazon? Are the partner sites available through Amazon's website? I never use amazon (really I do very little online shopping) so I am not sure how exactly this works and why it was thought to be such a great idea. I thought happyguy's comments on acquisitions made sense--depending on where things go. Obviously, cdnow has some branding that would be beneficial to someone. However, if the meta-e-tailers like amazon don't make it, then who is going to want to acquire the struggling niche players? Would a bricks and mortar music store want to buy cdnow? I doubt it. thoughts?
lockin	posted 04-06-2000 10:27 AM I agree with most of the comments in wassup's post. First, Amazon was appealing to investors because they thought online retailing was better than offline retailing in just about every way, and that Amazon would own the space. But Amazon kept losing money and profitability was nowhere in sight. But then Amazon started striking big deals with other etailers in specific categories, and investors believed that this was the company's future. The problem is that this strategy also relies on the health of etailing, both because Amazon usually takes a stake in the partner startup and because Amazon gets a lot of cash from the partner startup. These etailing stocks are floundering, which is a double whammy - the shares of the etailing stocks they own are now worth a lot less, and etailers will now have great difficulty raising cash to burn on marketing partnerships with Amazon.
happyguy	posted 04-06-2000 10:16 AM wassup?, I find it funny that you use the word 'guess' instead of 'research' or 'conclude' or 'decide' or something else which indicates more thought and actual fundamentals. Anyhow I just wanted to let everyone know how one columnist thinks its gonna happen: "'The struggles of CDnow appear to be a painful harbinger for online retailers, analysts said, because CDnow failed to achieve profitability despite being early to market and establishing a strong brand name - assets that popular wisdom has long equated with success in e-commerce.' Richtel's sources suggested that the company's best hope is a takeover. As long as bigger companies have money to burn on smaller, failing ones, the shakeout may just have to wait." So the upshot here is that takeover may be the way for a lot of these companies according to this coumnist.
wassup?	posted 04-05-2000 02:05 PM Here is a section about Amazon.com from an article I found on Upside.com. The author, the founder of FertileMind, is trying to guess which companies are going to collapse in the Internet Shakout. He doesn't seem to think that Amazon is going to be folding anytime soon, but that the stock will plummet. Talk about shockwaves.... "The giant is falling of its own weight Amazon.com (Nasdaq: AMZN) Rating: Strong Sell Amazon.com, the acknowledged leader in online retailing, has never been profitable. It has brilliantly convinced most investors to remain patient with its ever rolling river of red ink. In the beginning, Amazon's management claimed that the massive investments required to build a brand would create barriers to entry, so it should be excused from the need for profitability. But other companies have run over that vaunted barrier as if it were a white picket fence. The rapid success of companies such as buy.com (BUYX) (which spent very little on marketing and grew sales to $125.3 million in one year) has proven that large marketing expenditures on the Web are not necessary. Right before Wall Street completely lost its patience with the company, Amazon.com came up with another pie-in-the-sky strategy to keep Wall Street's allegiance. It has established several equity/marketing partnerships with online retailers such as Drugstore.com (DSCM), living.com, pets.com (IPET), Ashford.com (ASFD), and Greenlight.com. In these deals, Amazon.com makes a cash investment in the retailer and the retailer then turns around and uses that cash to purchase advertising. Many bulls on Wall Street believe that these agreements will be highly profitable and have raised their estimates on Amazon.com as a result. They are overlooking something watermelon-big, though. No one is sure if these marketing agreements will be profitable for the ones that matter, namely, Drugstore.com and the other partners. For instance, in the fourth quarter of 1999, Drugstore.com spent $25 million on advertising to acquire 267,000 customers. This translates into a cost of $94 per customer, and each customer spent only $27 at Drugstore.com. That means that each customer has to multiply his or her average purchases by at least 3.5 to give the company just a 1:1 return in revenue, let alone gross margin or operating income. We do not think these marketing agreements will be profitable for the other retailers either, and therefore the income stream will disappear. Thus, the equity value in the investments will not be as high as it is today. Investors will be left with a profitless retailer selling at 14 times sales. That has all the charm of a finger in the eye. We recommend shorting the stock."
scripter	posted 04-05-2000 01:01 PM If anyone is interested in Webvan, this might be a good buying opportunity. It has fallen a LOT in sympathy with Peapod. Webvan execs claim that their business model is very different from Peapod's, and that they won't suffer the same fate. If you believe it (I haven't decided yet whether I do), this might be a good time to buy.
JHirsch	posted 04-05-2000 11:58 AM Good point Teriffic. The whole industry certainly is not flawed. A lot of the marketing outlays and small (or often negative) profit margins are a really big problem. VCs are giving away money too easily and lots of people are going to lose their shirt investing in companies like Dr. Koop and Peapod. FYI Peapod is suing their former CEO for the $2.5 million loan they gave him with which he was going to repurchase stock. I doubt he used it to repurchase the stock. If they can get that $ back they might have a few extra weeks to survive till they get bought by someone. I would say the sector has a ways down to go. Investors will get scared when a lot of the big names get bought out or go under. CDnow is a big name, but its not clear what's gonna happen with them. When we get many companies actually folding or being bought for a large discount then we'll see more stock prices really drop, and if you can pick out the ones that will succeed you'll do quite well.
terrific	posted 04-05-2000 10:09 AM > How will E-Commerce companies survive? It could be that e-commerce isn't as troubled as it appears. Obviously, there are some etailers who are running out of money very quickly. But that doesn't necessarily mean that the whole idea of selling stuff online is flawed. My guess is that people who wanted to start internet companies but didn't have any unique ideas just decided to sell stuff. Some of them probably have good business models, and some obviously have bad business models. As the losers start to go belly up, the whole e-commerce sector is falling, so if there are any good companies in the sector this might be a good time to scoop them up cheap.
InvestorGuide Weekly Administrator	posted 04-03-2000 12:54 PM During the past year, many online companies added the "dotcom" suffix to their names, hoping for a quick boost in their stock prices. But this trend seems to have come to a grinding halt, and the brand image that a dotcom name carries with it is now considered a mixed blessing. (source: Red Herring) http://www.herring.com/insider/2000/0331/tech-dotcomless033100.html Also, a 30 page research paper has been written investigating the effect a dotcom name change has on a company's stock price. (source: Purdue University. Requires Adobe Acrobat) http://www.mgmt.purdue.edu/mcooper/newpapers/DotCom.PDF
CB	posted 04-03-2000 12:19 PM quote: Originally posted by Mayor of Investorville: [B]How will E-Commerce companies survive? . . . B] It seems to me, and I am new at this - that based on some of the articles I've read here on advertising and measuring conversion rates and such that with companies spending an average of 69% of their available cash on advertising it is going to be a long haul. If it's going to cost you millions to get visitors to your site it's going to raise your cost per visitor dramatically - this is just simple math. I am amazed at the numbers sites like www.Snowball.com have posted in their recent SEC filings. (they classify themselves as a "destination site" for generation i - one may not consider them an ecommerce site - but in a sense they are - they expect to sell advertising to survive). Maybe I just don't get it. They boast 6 million unique visitors a month to their network of sites - but at what cost? 35 million in the red? I know, they expect to turn this into a goldmine over the long haul but it seems to me that if it's going to cost such a huge amount to drive visitors to a site it's going to take a long long time for any of these co's to turn a profit. I dunno - I'm building a destination site myself which is doing quite well - we've been open since about the 1st of the year, have spent about 10K on advertising over 3 months and have had more than 100,000 visitors doing over 275,000 page views. We hope to ad several ecommerce sections to the site in the coming months. So when I hear all the negative stuff about ecommerce I get a bit ratled. I guess that the key for us will be to continue to avoid spending 35million on advertising Best CB
bobcobb	posted 04-03-2000 11:57 AM I think the best strategy would have been to make acquisitions when the stock was at its apex... a few months ago for most of these guys. Its too late for that though, so they should likely allow themselves to be consolidated into a larger company, maybe an offline company that needs and online presence. Peapod could certainly do that, depending on how dire their situation really is. The could bring knowledge at least to the table of how not to run an e-business. Some company like Webvan might like to buy acces to their customers, for the right price of course.
Mayor of Investorville Administrator	posted 04-03-2000 11:22 AM How will E-Commerce companies survive? News of the possible bankruptcies of DrKoop.com, CDnow, and Peapod has cast doubt across the entire industry. E-Commerce companies have been partnering with offline stores, dropping the '.com' from their names, laying off employees, and consolidating within and across industries. Which of these tactics will save these troubled companies, if any?

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