Now the writing is on the wall

For certain dotcoms, the effort to re-invent themselves by adopting the latest trends will not save them. Their obituaries have...

For certain dotcoms, the effort to re-invent themselves by adopting the latest trends will not save them. Their obituaries have already been written

David Bicknell

Viewpoint

This time last year, dotcom companies were gearing themselves up for a Christmas rush, hoping they could fulfil all their orders. Many secretly know they couldn't. This year, it seems, a few more have put warnings on their sites, suggesting that if you haven't got your order in by, say, 10 December forget it for Christmas.

That won't stop some customers ordering on the 22 December, and believing that they'll get lucky. If you want a Thunderbirds Tracy Island you're going to be out of luck and if it's a Sony Playstation you're after, you needed to get your order in by August.

In the US, once Christmas was out of the way, it was the turn of a string of online companies to use the American football Superbowl at the end of January as a "last chance" throw of the dice at getting their name known. A few million dollars of marketing spend for a few minutes of glory - only to find your competitors were doing the same crazy thing, rather like those male insects whose last act is going for a bit of conjugal bliss!

This year? Well, some of the more reckless dotcoms are no longer with us, and others have quietly put themselves out of their misery. For the rest, the question is going to be survival, by reinventing themselves, or finding some way of making their losses more palatable to Wall Street.

At the rate many dotcoms are currently going, it is not a problem some of them are going to have next year. Most will either have bit the dust or been snapped up by a bricks-and-mortar company.

For many of the surviving dotcoms, learning to become a chameleon is already becoming a black art. Used to be a business-to-consumer company? Not any more. B2B's the name of the game, and somewhat miraculously, these companies just got B2B religion. In a matter of months, they will probably reinvent themselves again, "stayin' alive" on the back of the latest trend.

At least that's better than indulging in some creative accounting to pull the wool over the accountants' eyes (increasingly difficult to do if you're a dotcom, because any self-respecting auditor must have seen it before.)

One of the latest tricks, according to BusinessWeek, is to account for fulfilment costs in a rather unique way. Rather than counting the costs of buying and maintaining warehouses and paying employees who ship orders as "cost of goods sold", some online merchants prefer to put the costs into "selling, general, and administration expenses". This practice has a knack of making gross margins look bigger than they might have been. The US Financial Accounting Standards Board has noticed the practice, but so far, has failed to do much about it. And no cash-strapped dotcom is going to voluntarily turn down the chance to slip the financial net.

BusinessWeek summed it up pretty well, suggesting that "regulators have gone out of their way to help new economy companies with pledges of no taxes and light regulation". Wriggling under financial hurdles or reinventing your business just to stay alive are hardly the acts of companies that are built to last.

Maybe regulators are themselves bending over too far. For the sake of the consumer, financial figures must give an honest picture of corporate health. Trying to hide the truth that many of these dotcoms are "lousy businesses" as one commentator recently called them, does no one any credit. Better a dead dotcom than a dodgy one.

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