One indisputable effect of the past three weeks' mayhem in the dot-com financial world: The semi-rich -- you know, the formerly
rich -- will get semi-richer.
Huh? What I mean is that with their shaky cash positions, minuscule stock prices and essentially zero access to capital now, second- and third-tier dot-com outfits are going to go away -- either fold or be acquired -- over the rest of this year. And that's going to strengthen the hand of the survivors, the leading companies in each area, immeasurably.
Nothing strange there. Seen with some historical perspective, what's happened this month in Dot-Com Land is not much different from what's happened in nearly every other major industry in America over the last century: explosive growth, followed by collapse and consolidation for all but the top players and then the emergence of a handful of incredibly strong long-term winners.
Remember the automobile industry?
To be sure, in earlier economies that happened at a much more leisurely pace. But it's characteristic of this Web-time-driven market that Web companies should live and die on Web time. Again, no surprises. And no inequity.
The big surprise may be just how fast and brutal this is going to be. In nearly every B2C category, for example, you can now draw a dotted line -- the dot-com world's version of redlining -- under the No. 2 company, and essentially write off those below that line. That may overstate it a little, but only a little. And yes, it's harsh. But it's close.
In the crowded pets category, we'll certainly see just a couple of survivors emerge, through consolidation and collapse beneath that dotted line. And in books. And in auctions. And in beauty products. And in online drugstores.
Brutal ... but not new. That's how it worked in all those other industries. A fundamental lesson we learned this brutal April:
Dot-coms aren't immune to the laws of financial physics, especially gravity.
If you've been betting on some second- and third-tier dot-coms, this is bad news, of course. But let's try the glass-half-full side: If you're long some of those first-or-second-place companies, this can be very, very good news.
Without the noise in your category-winners' markets -- from struggling competitors engaged in crazy, negative-margin pricing, for example -- those leaders can consolidate their positions rapidly, with very little cash. Maybe they'll play a game of attrition, watching the about-to-be-losers writhing around as they collapse. Or, if those mortally wounded failures have something of value -- a strong customer list, for example, perhaps bought with outrageous and ultimately self-destructive give-away-the-company promotions -- they'll buy them, for a dime on the dollar. Or less.
If you're still in those inevitable losers? I can't say this is the time to get out -- that was months ago. But if you've been holding on -- down, say, 75% -- but hoping for a recovery, read my lips:
There isn't going to be a recovery for these companies
. Cash out now and consider it an expensive lesson learned.
, however, a very good time to draw up your own little list of strong, obvious leaders in the dot-com categories. Then watch this ugly market closely for opportunities to get into those companies. It may not be time yet -- remember that I think we're going to see a lot of thrashing around, and more losses, until things start to pick up this fall.
But those strong, first- and second-place entries will emerge from this rubble far stronger, as clear winners. After all, as reader after reader has written me, sometimes plaintively, over the past couple of weeks, the Net isn't going to go away. The Net-shopping phenomenon isn't going to go away. The best of these companies will become profitable. In some cases very profitable.
Thanks, in very large part, to this fire sale.
Hmm. Does that mean --
-- that B2C companies could actually come back into favor? In my lifetime?
Could be, could be. Gotta think about that for a few days.
In Part 2, Seymour offers a short-list of dot-coms that will survive.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at