Struggling dotcoms face test as holiday season approaches

Dotcomfailures.com lists 44 web firms that have shut down so far. And that does not include Priceline.com’s move to get out of the grocery and gasoline business by shutting down its WebHouse Club site. Analysts say the shakeout is becoming more intense as firms try to position themselves to become profitable — or at least stop their losses — for the upcoming holiday season. "This is going to be a pivotal holiday season for most e-tailers," says Scot Melland, chief executive of Connecticut-based Vcommerce, a company that provides technology and other services for Internet retailers. "The last quarter could account for up to 50 percent of their business, and if they miss the holiday season, it’s going to be difficult to go back to the capital markets."

Melland says the gloom for some firms is balanced by sizzling growth for others as the stronger players in Internet commerce assert themselves. "The consolidation of the industry is starting to happen, and the weaker players are falling," says Melland. "This is good news for the remaining players because there have been so many going after the same customer base. It’s becoming more rational."

The cyberspace survivors will have an opportunity to cash in on the enormous growth in the sector, say analysts. Forrester Research predicts US online spending this holiday season will double to 10 billion dollars, while Jupiter Communications estimates the total will be 12 billion. Gartner Group meanwhile forecasts worldwide online holiday shopping revenue to surpass 19.5 billion dollars. Still, the competition in the near-term will be intense because of the entry of brick-and-mortar retailers such as Wal-Mart, JC Penney and others into the internet channel.

Geri Spieler, a Gartner analyst, said internet firms will have to meet increasingly stringent demands of US consumers, who are now in their third holiday season in which the internet is a factor. "It’s much harder," she said. "Last year there was some forgiveness, this year there’s no forgiveness."

Spieler said that while consumers are demanding real-time inventory and fast deliveries, Financial backers are holding firms’ feet to the fire to ensure they deliver a profit. In 1998, she said shopping on the web was "a novelty, in 1999 we were disappointed. Now in 2000, it better work or you’re going to have to get out of town, you’re not going to get another chance," she said.

Henry Blodget, a respected Internet analyst at Merrill Lynch, predicts the bloodbath in internet retailing will get worse before it gets better. Blodget estimates that 75 percent of the estimated 400 public Internet companies will never make money and will disappear through consolidation or failure in the next five years.

He urges investors to be highly selective before pumping money into e-commerce firms, saying, "The internet spoils will increasingly go to the few, not the many." Put another way: "Many turtles hatch, few make it to the sea," Blodget wrote.