Reality check number two. First, the ’structural readjustment’ of
new economy stocks and, last week, the demise of Boo.com, the European
dotcom company with the highest profile and the heaviest backing. When
Boo.com was declared bankrupt last week it had used up pounds 91 million
in funds in less than a year, making Boo.com the dotcom for whom the
term ’burn rate’ was surely invented.
Burn rate is, of course, used to denote a dotcom company’s enthusiasm
for getting through its available cash - and, for the majority of
dotcoms, marketing accounts for a very large proportion of spend. Cynics
would argue that what the burn rate also indicates is their
determination to get the least possible value from this cash. At least
the pop group and art guerrillas, KLF, when they set fire to pounds 1
million in used notes, got a rather compelling home video out of it
Boo.com commissioned a couple of quirky films which undoubtedly made
everyone aware of the site’s address. But what the company actually
offered was never really clear from the advertising; and as the Boo.com
site denied access to all but those using the most powerful of PCs and
fastest internet connection, it was difficult for many people to find
out for themselves.
That’s not to say that the company’s marketing efforts drew a complete
blank. Last week some of the industry’s waggish observers were pointing
out, perhaps cruelly, that one of its ads featuring a guy in designer
lycra cycle gear being loaded into an ambulance turned out to be a
remarkably accurate portrayal of the operation’s fate.
So what lessons do we take from Boo.com’s fate as the first major
casualty of the e-commerce adventure? Surely, if nothing else, all talk
of burn rate will become rather unfashionable?
Miles Saltiel, the director of technology research at WestLB Panmure,
says: ’No-one has been more aggressive about spending money than
Boo.com, and they spent it too fast on a questionable business model.
They had technical problems. They delayed their launch. They weren’t
properly operational in time for Christmas. One of the things it teaches
us is that when money is cheap it gets treated cheaply. Will it now be
harder for dotcoms to get cash? It was always going to be hard getting
cash in the new climate.’
Worryingly, though, there are a large number of dotcom companies still
committed to scary burn rates. A report from PricewaterhouseCoopers last
week predicted one in four UK-listed internet companies could run out of
cash within 15 months. The report concluded that a phase of
consolidation is perhaps inevitable.
Already time is up for Net Imperative. On Monday the online news and
community site called in the receivers. After only six months the main
backer, Durlacher, was refusing to provide extra funding.
One way or another, all this signals the end of the boom times for media
owners, not just in TV but also in radio and outdoor.
Most media analysts, however, agree with the assessment that there are
few generic lessons to be learned from Boo.com’s profligacy. Nigel
Sheldon, the managing partner of m-digital, comments: ’It tells us you
need to have the practical technical expertise to implement your
strategy. There were too many delays and mistakes. Overall, though, I
think it will lead to better management in this sector. It’s the nature
of this business that the demise of a company like Boo.com won’t deter
people from launching.’
This may ensure, for instance, that in the future retail sites will be
run by people who have some sort of knowledge of retail. However, there
are those in the advertising business who draw more revolutionary
conclusions from all of this.
As the boss of an agency representing one of the world’s largest FMCG
advertisers stated last week: ’The much maligned leaders of the
so-called old economy have been predicting this privately for many
months now and have been preparing for it. Some people believe that the
web isn’t about the creation of a new type of retailer, it’s about doing
away with a whole layer of retailing infrastructure altogether. As old
economy companies prepare to take their place at the heart of the new
economy, they’ll regard all the money spent by companies like Boo.com
merely as generic marketing for the proposition that you can buy things
via the internet.’