in 1

What Happened

2  Months

to the Internet Dream?

   REMEMBER THE INTERNET? Silicon Valley�s dream project collided with Wall Street�s fund raising machine and created possibly the greatest financial bubble of our time. It was a spectacular show, but now it�s over. Every day brings another obituary of a once darling can�t lose Internet company. It�s the end of this giant ticker tape parade � somebody�s going to have a lot of clean up to do. The implications for the ISO business and the payment processing industry are profound and may determine the players in a new generation of market leaders.

What Happened?

   Internet business (e-retailing, ecommerce, etc.) took off with a spurt. And why not? After all, when or America On Line can develop customer bases in the 20 million range in only three to four years, there has to be value there somewhere, right?
   Of course there is value there, but how much? When everyone focused on the top line of these businesses and the gross measurement statistics (revenues, customer count, etc.) they missed the point � gross margin and profitability. If you can sell more stuff, you can figure out how to make money on it somehow someday, or so the thinking goes. But, the realities of business aren�t so glib. What saves in not having stores, they pay in shipping and handling costs. Chalk up one for the accountants.
   In many cases, hyper growth of this magnitude causes more problems than it solves. Growth can often cover up a lot of mistakes, but when things spin out of control, a bad situation can go to worse fast. Take the 1999 Christmas selling season for example: some analysts report that as many as 6% of e-retail shipments went awry or were late. Late doesn�t count when it comes to toys under the Christmas tree and consumers didn�t easily forget that kind of disappointment � they took their revenge by staying away from Internet retailers in 2000. Sales grew only an average of 50% from 1999, a rate that will probably knock many weaker players, like eToys, completely out of business.
   Stock prices reflect this weakness: The Goldman Sachs Internet retail index has fallen 85% since March 4, 2000. There�s not much farther to go.

       �> Next Page