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Dot-com overdrive

Let me begin by saying what I have said before. I believe in the new economy. It certainly exists and, whatever cynics may say, it is the harbinger of the future.

The Internet itself is one of the great discoveries of the last century. Apart from penicillin, ahimsa as a political strategy, satellite communications and the silicon chip, I cannot imagine anything that has more fundamentally changed the way we live, think, work, talk and share the world today.

It has also arrived at the right time. Just when the whole world had reached a consensus that globalisation must happen, it showed us the easiest way to do so. For people and organisations and nations to bond together across the vast oceans and perilous mountains. Without caring too much about national boundaries and political sensitivities.

We were doubly lucky that young Indian entrepreneurs in Silicon Valley were among the first movers on the Internet and many of them made a huge success of themselves and their companies in the process. They became cult figures for Indians all over the world and grew the Great Indian Diaspora even larger. Emerging, in some cases, as prophets of a new technology, a new lifestyle.

But even I, who believes so strongly in the Internet, am simply fed up with the dot-com overdrive. There is just too much of it. The newspapers are full of it. So are the magazines, the hoardings on the streets, the television channels, the job ads. Wherever you look, it is only dot-com, dot-com, dot-com. As if there is no world outside of it. No other success stories. No drought, no famine, no cyclones. No unemployment, no poverty, no homelessness.

While creativity and independent enterprise are wonderful things and the Internet will no doubt create huge opportunities for our clever programmers, enterprising content providers and brilliant techies, we are slowly reaching a stage where people have dot-com coming out of their ears.

It is no small surprise, therefore, that the stock markets are tiring of the hype and angel investors, who have put in billions to grow what is undoubtedly one of the greatest innovations of our time, are now looking for a quick exit. Of course, they have made lots of money in the process and I am sure many more will still make money on dot-coms.

But slowly everybody is figuring out what a child would have told them in the first place, that the traditional tenets of good business apply as much to dot-coms as they do to (say) selling books, making a movie or putting up a huge petrochemical complex.

Simply put, this means that a dot-com company, if it is to survive and grow must have a viable revenue model as well as (quickly enough) a healthy and sustainable bottomline. Hype and hysterical spending on brand-building are not enough to sustain dot-coms.

Mindshare must translate into earnable profits. Just as distributors and exhibitors shun a film-maker, however talented he or she may be, if they do not make profits from his or her film, investors and venture capitalists have also begun to shun dot-com models that thrive only on ESOPs and humongous ad-spend and earn a pittance for those who put their hard earned money into it.

After the excitement over entering a new business line pales, investors start looking for returns. In fact, my experience is that the more you hear your investors say that they are ready to wait for the eventual turnaround, however long that may take, the more you can be sure that they are getting restless and want you to do something quickly.

No one ever has deep enough pockets. That is one of the myths of our time. There is no evidence to show that the animal exists. If you take too long to make money in any business, new economy or old, remember that investors run faster than Lot's wife and never look back.

Actually there are two kinds of Internet companies and most people do not know the difference yet. There are technology companies like Wipro and Infosys who are clearly here to stay for a long time and put out astonishingly good results.

These are hardcore businesses where very little can actually go wrong. They will grow as more and more e-commerce happens. They will correct the traditional inefficiencies and help businesses realise their true potential. These companies have a great future and my view is that despite the value of their stock being high compared to old economy stocks they have still a long way to go. Up, that is.

But the dot-com companies are an entirely different ball game. Here, what you are valuing is an idea. You are putting your money on talent and creativity and, as in all such businesses, there is a different risk profile. You know that only one out of a hundred will succeed, as in (say) the movies business, but the one that succeeds will make so much money that it will always be worth taking the risk.

However, to find that successful company in the dot-com business is almost as difficult as predicting who will become Miss Universe next. The pageant is too large and there are already too many beauties jostling around for attention.

There are six complete portals for the Indian woman and another 12 are coming up. Every newspaper house, every magazine has put up or is in the process of putting up a news portal. There were nine job portals at last count. Now every television company is talking about setting up an entertainment portal. So are Ajay Devgan and Sunil Shetty, as well as a host of other cinemawallahs. No one talks niche any more. No one talks about domain knowledge or experience. Everyone is chasing his or her own dreams entirely independently and is looking for people to fund them.

While this may make exciting times for Generation Next in India, it makes it that much more difficult to separate the boys from the men. There is too much of overcrowding in the dot-com business today and even old aficionados of the Internet like Vijay Mukhi are saying that a shakeout is not entirely a bad idea for the industry. There is simply too much happening at the same time, not all of it of the same quality.

Size has nothing to do with it. The big companies are the ones who are actually producing the shabbiest products because they maybe flush with funds but they have no idea how to effectively use the new medium. They do not understand creativity as well as the smaller and younger companies do.

Nor do they know how to incubate and nurture talent. The best, in any case, will work for themselves, like doctors and architects and journalists.

That is why you see so much bloodshed on the bourses today. People are slowly figuring out that all Internet companies are not such a great buy.

My ex-colleague from The Times of India, Sailesh Kottary, was telling me a story the other day about how some neighbour of his invested his life's savings in what he thought was an Internet company called Softwear only to discover too late that it made lingerie. This may be an apocryphal tale but it explains why, all of a sudden, people are getting edgy about dot-com. No one is comfortable investing in a company that spends millions on advertising and earns in thousands, if at all.

That is why the recent shakeout was a blessing in disguise. It will help the good companies in the new economy to dig in their heels and strengthen their position. The altu faltus will be exposed for what they actually are. Carpetbaggers trying to elbow their way into a business they know very little about. Who see in the Internet boom just another opportunity for making easy cash.

I conclude by reiterating what I said in the beginning. The new economy is here to stay. So are the Internet companies. But only some of them will succeed and those who do so are the ones who are best prepared, technologically and talent-wise, to anticipate the future.

As for dot-coms, only the young and nimble-footed who can match click for brick and learn swiftly how to integrate new stratagems with old revenue models will continue to find cash to support their growth. The rest will stumble over their own enthusiasm and suddenly find that all this hype, all this hoopla was too expensive to afford without adequate turnover and sustainable profit.

Moral of the story: Do not get carried away by your own hoopla. The future lies with those who can devise ways and means to create serious and profitable business models that span, both, the virtual and the real.

Pritish Nandy

Business