Big Dot-Com Charade Is Over

For the Big Dogs, it was fun while it lasted.
Publish date:

You don't see it in any of the numbers, but something has changed for the worse for the majors in the dot-com world. As more and more initial public offerings get pulled and more and more public dot-com companies strain to produce profitability, there is a major behind-the-scenes struggle going on between the majors and the wannabe dot-coms.

The change has to do with the stock market and the market's perception of all of the deals fledgling companies made with the large portals. For two years, one of the great steady streams of income for the Big Dogs came when a new dot-com decided to "do a deal with an established dot-com."

The process went like this:

National Gift

decided that it had to do something big to get noticed. So what it would do is promise Big Dog portals that it would pay them $20 million for a sponsorship and placement deal. The cost for the Big Dogs was nothing. The cost for National Gift was paid by the public as National would produce an IPO and spend the proceeds on these sponsorships.

This strategy made sense. National Gift would, when it was public, announce the giant sponsorship deal. Its stock, stupidly, would go up as traders loved these announcements. And the Big Dog portals would go up, too. Lots of press releases would be generated and the execs at National Gift, after getting totally fleeced by the Big Dogs on altogether unfavorable terms, would then have to fork over the cash.

Now look how the world has changed. First, these deals all stunk for everybody but the Big Dogs. The big joke was that nobody got any real traffic from these deals and the Big Dogs got all of the profit. Nobody ever wanted to admit that, least of all the analysts, because it undercut the basic premise of the business and knocked the sainted Big Dogs.

Second, the National Gift Wrap.coms ran out of money doing these deals and they brought no traffic to monetize. These deals gutted the business-to-consumer plays as surely as if they had taken hemlock.

Third, the stocks stopped going up on these silly deals as the market ran out of greater fools to take other fools out of the trades.

Fourth, the IPO market ended. That left no more cash to be raised to be given to the Big Dogs.

As so many of these stupid deals got announced, the Big Dogs can live off the fat of them near-term. Hence, there are no short-term disappointments ahead.

But long-term, the greatest single source of gross margins, the easiest low-hanging fruit, has been picked. And no new trees are being planted.

I, for one, am glad the big charade is over. The pressure to do these kinds of deals was horrendous on the Little Dogs. Now prudence and a desire for profit dictate other strategies.

But what a great game it was for the Big Dogs while it lasted!

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at