The Deadcount Is Slowing Down

Updated: Apr 2 2002, 05:30am hrs
With Easter Monday just over, dare one talk of resurrection in the dotcom world too Any portent of rebirth must first be cast in sober contemplation of death though. Thus, the bad news first. According to, which tracks the Webs mortality rate with morbid passion, 18 internet companies in the US shut shop or went bankrupt in February 2002. The good news: Februarys numbers marked the lowest casualty rate since August 2000, when 10 internet companies folded up.

In fact, the data seems to indicate that the worst carnage might just be over, with further shutdowns of Net plays set to plateau for much of 2002. According to the websites research, in the first two months of 2002, a total of 37 internet companies dot-busted compared with 115 in the same period in 2001 and only three in the first two months of 2000. (Remember the meltdown really began around April 2000).

If indeed, the precipitous decline of the dotcom into a black hole of bankruptcy is slowing down, the change comes none too soon. At least 537 internet companies in the US shut shop or went bankrupt in 2001, the darkest year in the internets supernova history. The mortality rate in 2001 was more than twice the previous year, when 225 dotcoms went under in 2000. The lowest point on the plunging curve was between October 2000 and June 2001, a horrible 11-month period that accounted for nearly 75 per cent of all the dotcoms who went to the great URL in the sky in the past two years.

The plague struck in the business-to-consumer space first and after killing off the biggest and best brands, by 2001 had spread to business-to-business Net plays. Out of the total of 537 shutdowns so far, 40 per cent came from the B2B segment with 217 mortalities an astonishingly close second to B2C mortalities at 223, or 43 per cent of the total. (For the curious, sites targeted at general interest audiences accounted for the remaining 86, or 17 per cent.)

In terms of sector-wise shutdowns, the worst hit were content providers (223 down), followed closely by access providers (207), and then, infrastructure companies (113). E-commerce companies, which saw 121 shutdowns in 2000 out of a total of 225 shutdowns, had only 86 closures in 2001 perhaps more a testimony of fewer numbers left for the plague to feed on, than any great love for e-commerce. Finally, out of the 537 that shutdown in 2001 only 39, or 7 per cent, were profession services companies like consulting services firms.

Like you, I too was suspicious. What if Webmergers.coms numbers are actually harbingers of doom: are fewer dotcoms dying simply because there are fewer dotcoms to die Not so, says the website. The company estimates that 7,000 to 10,000 internet companies received formal funding, which means the mortality rate has not nearly been as bad as it could have or it even feels like.

Webmergers.coms Internet Asset Sales report for the first three quarters of the calendar year 2001 is also revealing in that it reasserts the truism that one dotcoms poison is another dotcoms meat. Surviving dotcoms are snapping up the assets of dying dotcoms sometimes at bargain basement prices and, in the process, growing even stronger. That would be in keeping with the Darwinian nature of shakeouts that roil infant industries: the stronger prey on the remains of the weaker.

Acquirers spent $2.06 billion to acquire the assets of 162 bleeding or dead internet companies during the first nine months of 2001. Remember that many of these acquiring companies were also desperately struggling to bring down their burn rate, but they still managed to cobble together the funds needed to acquire bargain assets. The report states that acquirers were increasingly taking advantage of a buyers market to fill product line gaps, often buying technology assets.

In fact, the research identifies six distinct kinds of acquirers based on their strategic imperatives. Infrastructure builders, who use asset acquisitions to fill gaps in their existing internet infrastructure. Scale aggregators, who snap up bargains to add customers and scale to their existing operations. Financial acquirers like recovery firms, who buy distressed assets in order to create entirely new businesses. R&D accelerators, who hunt for cutting-edge technology assets to speed up their internal development-stage projects. Muscle builders, who have an eye on the Initial Public Offer market and build up ballast on their balance-sheet by buying assets. And intellectual property salvagers, who shop for defunct domain names, customer lists, and anything else that will add more traffic and brand value to their sites.

With the deadcount only slowing down but not over yet, there are plenty of good deals to profit from. Thats true for you if you are either a dying operation or a survivor. If the Grim Reaper is knocking on your dotcoms door, do yourself a favour and pull the plug sooner than later. Start selling assets while they still have value. Your creditors will thank you and your employees will bless you (and perhaps even curse you less for the stock options you sold them and which are worth less than the paper they were once on.)

If you are battle-scarred but showing signs of lasting out, go out there and shop like crazy. Dont worry, this time your venture capitalists will not snap at you for your spending habits they will support your purchase decisions. Unlike the whacky advertising blitz, or the colour-coordinated office space you blew up millions on, shopping at distress sales adds value to your internet ambitions. Prepare for life after death.