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Thursday, 14 March, 2002, 10:14 GMT
How to nurse an ailing web firm to health
Ben Cohen
Ben Cohen: Still opportunities for instant profits
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By Mike Verdin
BBC News Online business reporter
In the fourth of a week-long series of reports on dot.coms, BBC News Online surveys the business dilemmas entrepreneurs faced as they struggled to reach breakeven.
As the crash gathered pace, and internet firms collapsed by the valley load under the weight of broken revenue promises, Evan Williams had a canny idea.

Mr Williams was, from his flat in San Francisco, US, attempting to sustain, a site providing tools for surfers publishing personalised internet sites.

Dot.coms weren't worth anything until they converted hits into holidays or cases of wine sold

John Mackie, British Venture Capital Association
But with advertising revenues weak, he was uncertain how the service could stay afloat despite patronage by thousands of users.

So Mr Williams launched a further website,, gathering intelligence on dot.coms attempting to bridge the canyons between revenues forecast and achieved.

A year on, the site provides daily news of revenue-gathering developments by internet firms.

And Mr Williams used analysis of these reports in deciding, earlier this year, to raise funds through launching an advanced "Bloggerpro" service, offering an uprated service for $35 a year.

Free to fee

Indeed, one of the key changes to hit e-business over the past two years has been the willingness to consider charging users - to move, in netspeak, "from free to fee".

Commission-earning dot.coms such as travel-to-gift e-tailer claim their survival has been based on "sound" business plans.

"We have basically done what we had said we would," says chief executive Brent Hoberman.

"We have never missed a City analysts' forecast - ever."

Bad ideas

But many found that old economy guides to, for instance, revenue gained per reader failed to transfer online.

"People were thinking 'if we get 100,000 hits per day we are worth 1m'," says John Mackie, chief executive of the British Venture Capital Association.

"They weren't worth anything until they converted hits into holidays or cases of wine sold."

Other entrepreneurs ignored old economy truisms altogether.

"Market research? That was something Colgate did before it launched a new toothpaste," Ernst Malmsten recalls of the business nous behind

Do or die

Typically, sites floundered on the new economy misconception that the super information highway was paved with advertising riches, says Olivier Travers, a Bordeaux-based internet consultant, and Theendoffree contributor.

Steve Bowbrick,
Steve Bowbrick: Profit forecast

"So they were forced to consider charging, or closing altogether," Mr Travers says.

Online magazine was among early movers to adopt subscription in an effort to trim losses.

Companies this year warning of the expansion of pricing policies have ranged from internet service provider Freeserve to Financial Times website, the e-mail firm famous for its indoor lawn, is also finding richer grazing as a paid-for site.

"We began charging existing users as well as new ones last month," founder Steve Bowbrick says.

"So far it has gone better than we thought. People do seem to be willing to pay."

The firm promises to be one of the growing band of web firms heading towards profitability this year.

Jobs axed

The trouble is that not every has found its content rated by users as worth paying for.

"If I am having to pay $10 for an online bookmark service, $10 for postcards, it soon mounts up," says Mr Travers.

"People will put a limit on what they are prepared to spend."

Some sites have also found the free-to-fee move complicated because of the existence of no-charge competition.

"Who is going to pay for a service you can get free elsewhere?" Mr Travers says.

So dot.coms once awash in venture capital cash have been left with little alternative but to offload costs by the bucketload to stay afloat.

Cutbacks have been so severe that when recruitment analysts last week reported the lowest number of US job lay-offs since the bubble burst, they saw the figure as worrying.

"Unfortunately, the dramatic decline in job cuts is not necessarily good news for the sector," the report, by Challenger, Gray & Christmas, said.

"Its ranks have been decimated. Companies that survived the collapse did so by cutting back to the bare bones."

Moving house

Downsized companies have also been able to save costs by moving to smaller premises.

Tony Hackett, director at web address firm, has noted a growing presence in Clerkenwell, an area long favoured by small media firms.

"Lots of internet companies have come to the area," he says.

"As far as a service industry is concerned, it's a great place to be."

Even Lastminute has moved, from Mayfair to cheaper offices near Victoria.

Body snatchers

Yet many dot.coms have still found themselves shunned by profitability, and sought either merger, closure - or a strategy that can amount to both.

You can make money through the internet tomorrow by setting up a porn site

Ben Cohen

A market has emerged in second-hand stock exchange listings - in distressed dot.coms selling not just parts of their operation but their near lifeless corpses to firms seeking to enter the stock market on the cheap.

Many of the resulting mergers - called reverse takeovers - are unsurprising.

In February, for instance, South African e-commerce firm Berget moved into the listed remains of computer firm C-Tech.

Last summer Finland's Tera took on the remnants of fellow incubator Oxygen, which was backed by media mogul Elisabeth Murdoch.

But shareholders who invested in online printing firm two years ago were unlikely to have predicted that, after a reverse takeover, they would own stock in a phone ring tone firm, Invox.

And investors in fallen incubator Cube8, once worth more than 50m, found in December they held shares in food delivery firm Room Service.

Room Service, which Cube8 had invested in, not only avoided the costs of a typical flotation.

"That alone would have cost us 500-750,000," Room Service sales chief Andrew Gradus said.

The firm also gained the remnants of Cube8's cash pile, and industry contacts useful in improving a Room Service website once dismissed as being "as ugly as the back end of a particularly ugly dog".

Porn fee

For entrepreneurs less willing to accept defeat, another option presents itself for instant cash gains, if at a cost to social standing.

think of the internet like the Wild West. First you get sex and gambling, then infrastructure

Greg Hadfield, Schoolsnet

"You can make money through the internet tomorrow by setting up a porn site - putting up some pictures and charging for them," says 19-year-old Ben Cohen.

And he should know.

Having been the toast of UK entrepreneurs for founding a Jewish community site sold for 300,000, Mr Cohen earned a roasting for a subsequent move to the web's top shelf.

If his comments seem trite, remember it was only on Monday that Virgin Mobile was reported to be in talks with Playboy over providing content for internet-enabled mobile phones.

Hutchison 3G was also said to have hired executives to explore opportunities for phone-based "adult entertainment".

And one of the better performers on the tech-heavy Nasdaq stockmarket over the last year has been the porn firm Private Media.

Predictions by Greg Hadfield, chairman of teachers' site Schoolsnet, that education is the virtual world's "next big thing" suddenly look premature.

"I think of the internet like the Wild West," he said.

"First you get sex and gambling, then infrastructure, and when you get the right to be called civilisation is when you have holistic education."

Old economy

Ironically, Ben Cohen offers educationalists some hope.

He is graduating from e-commerce to take a place at Kings College, studying philosophy and ethics.

But there is still a battle ahead to prove that the newest of sectors does not for its welfare rely on association with the oldest profession.

Friday: The future for dot.coms.

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