| It’s bad times for consumer Web sites: Living.com ceased operation, Kozmo.com laid off 275 people (about 10 percent of its workforce), and Wine.com and Wineshopper.com combined operations, and whether or not iOwn.com was still in business or had shut down was open to question.
Inman New had reported that iOwn.com had shut down and then retracted the story, saying it was running with a skelaton crew on a day-to-day basis.
Even their big name backers — the likes of Amazon.com, GE Capital and Kleiner Perkins Caufield — couldn’t prop up these sites. The bad news behind the bad news: The dotcom failure and consolidation trend will likely continue for the foreseeable future, experts say.
There’s a common thread to all three companies that folded or retrenched: For all their new economy glitz, they are in large part traditional low-margin operations, said Ravi Kalakota, CEO of hsupply.com, a virtual distributor to the hospitality industry and the author of “E-business: Roadmap for Success.”
Those and myriad other dotcoms are caught in a vicious cycle, Kalakota said. In order to attract their next round of funding, they need to show the market positive financial results.
The low-margin nature of their businesses, however, means that quick success can be achieved only through high sales volumes. This sort of momentum requires volume rebates and incentives that further erode profit margins and, in general, demand more time than backers are willing to give. |
