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Review Friday, 15 December, 2000, 15:18 GMT
Dot.com to Dot.bomb

This was the year when the extraordinary boom in the internet sector finally came to an end, as the BBC's Internet Correspondent Rory Cellan-Jones explains.

On a March morning this year a company just eighteen months old, with tiny sales and only a distant prospect of profits, suddenly found that it was worth half a billion pounds.

Looking back, the day of Lastminute.com's stock market flotation now looks like the day that Britain's dot com bubble began to burst.

But as Martha Lane Fox and Brent Hoberman posed for pictures in front of a screen showing their share price heading above 5 it seemed that faith in the internet's ability to change the rules of business was boundless.

Since then those shares - which were 48 times oversubscribed - have headed steadily downwards, passing the 3.80 at which they were issued and now settling below 1.

But Lastminute.com is at least still in business and continuing to expand.

Other companies that briefly surfed the huge wave of enthusiasm for anything with a dot.com after its name have simply vanished.

Changing paradigm

Up until March, it had seemed that anyone who had half a business plan and dot.com on the end of their firm's name could raise millions in venture capital in a moment.

But even in the early months of the year the mood was shifting.

The hottest acronym was no longer B2C - business to consumer - but B2B, dot.coms helping business function better with each other.

But by the middle of the year there was a new joke amongst the young and ambitious who had deserted traditional firms in the hope of dot.com millions. B2B stood for back to banking, B2C for back to consulting.

US worries

It was the chill wind from across the Atlantic which changed everything.

As share prices crashed in New York on the Nasdaq high-tech stock exchange in April, venture capitalists put their chequebooks away.

Companies like the online health products retailer clickmango.com found that firms which had been fighting to fund them just six months earlier no longer wanted to know.

Clickmango's business plan always called for regular injections of new funds. Without more money it was forced to wind down.

But it was the crash of Boo which cast a dark shadow over Britain's dot.coms.

Boo-hoo

In May the online fashion retailer called in the receiver after spending a hundred million pounds.

Boo had huge ambitions, planning to sell in 18 countries, and to create Europe's first major online retailer.

But a heady combination of management incompetence, technical failure and extraordinary incompetence brought the company to earth.

Their website had been late to launch, and had proved virtually unusable for those without a fast internet connection.

Few people could be bothered to make it through the maze of graphics to actually buy anything.

Meanwhile the company was burning cash at a furious rate as the costs of marketing in so many countries piled up.

Its Swedish founders, Ernst Malmsten and the former model Kajsa Leander, claimed that it was a lack of vision on the part of their investors which had brought them down.

But to outsiders the lesson seemed to be that selling to online consumers was actually a difficult, unglamorous business. Giving large sums of money to people with no track record in running major companies no longer seemed such a good idea.

That is a lesson which Lastminute.com has taken on board, recruiting the former Asda chief executive Allan Leighton as its Chairman.

Suddenly investors are looking for experience and a few grey hairs.

Losers

The big losers in all this have been the army of small investors who were bewitched by the promise of high-tech riches.

In the first half of the year there was startling growth in the number of people trading shares online. And people using the internet to buy shares for the first time were often keen to buy internet shares.

Now those who invested in lastminute.com or QXL have learnt a hard lesson. The internet does not change the basic rules of business and not every high-tech firm will turn out to be a Microsoft.

But while a cloud of depression has settled over the dot.coms at the end of the year, there are a few reasons to be cheerful.

The huge excitement which attended the rise of the dot.coms encouraged a lot of people to believe that they too could start businesses.

Venture capitalists say there are still plenty of good ideas coming across their desks.

And perhaps next year they will start putting money behind them once more.

Top business stories of 2000 from UK and abroad

Top UK stories

Stories from abroad

World stock markets
See also:

04 Dec 00 | Business
14 Mar 00 | Business
30 Nov 00 | Business
18 May 00 | Business
30 May 00 | Business
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