Under Financed is Underwater
Most dotcom companies were able to score huge fund raising coups in 1999, and even into
2000. But it quickly became clear that the cost of creating a serious business in the
Internet space was far beyond what anyone had imagined.
It�s the Last Share that Counts
Don�t forget that stocks are priced at the margin � that means the last share sold dictates
the overall market capitalization of the company. Take the last share trade price and
multiply by the number of shares outstanding and that is the market cap. In 1999, market
cap was all the rage � a high market valuation meant forward momentum, aggressive
acquisition strategies, and the ability to attract top talent for share bonuses. But
the reality behind market cap is that it�s only as good as the last guy who bought the
stock � not every shareholder was willing to pay that price, in fact, only the last buyer
was willing to pay it. That means that the notorious day traders so active last year
determined what the CEO of an Internet company could do because they determined the
market cap of the stock.
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What�s the Internet Good For?
Well, a lot actually, but profitable mass e-retailing isn�t one of them. The Internet
experiences the most financial success when it saves people time and companies money
in the course of their normal business activity. The problem is squeezing some of that
savings out of the customer to make up the Internet company�s revenues. Cost saving
measures are the stock in trade of companies everywhere � companies of all sizes have
been trying to do things better-faster-cheaper since the mercantile economy was invented.
Why? Because they are under pressure to keep their prices down. So it�s no surprise that
companies would want to increase productivity through use of the Internet in their businesses.
The Weirder the Better
Another thing the Internet is good for is making the obscure accessible. One of the secrets
to eBay�s success has been that it makes odd things accessible to a huge audience. Suppose
your 5 year old daughter became fascinated by whales as a result of a story. You can go to
eBay and buy whale baleen for her show and tell project. That is something that would never
have happened without eBay or would at least have taken a trip to Alaska or 3 months� writing
back and forth with translations into Inuit. Instead, it can all be done in less than a week
using eBay, credit cards and FedEx. Incredible. The bad news is you probably won�t buy a lot
of baleen � it�s a once in a lifetime purchase. But the seller is in touch with a much larger
marginal market than had ever existed in his lifetime, and that is a good thing.
What does all this mean for an ISO?
The Internet�s ability to increase sales may have been the rage a year ago, but now retailers
everywhere will be wiser to its prospects. E-retailing is a great idea for merchants selling
unusual or unique items such as watches, collectibles, antiques or art. It does nothing for the
corner cleaners or the local food store. If you are selling web services, look for retailers
with a special niche.