01 June 2000

If you hadn't heard of Boo.com before its spectacular bust last month, you weren't alone. Getting the message out about any online site is one of the big hurdles for any dot com. But in Boo's case, even those who had heard of the now defunct online retailer probably spent more time swearing at it than shopping.

Boo.com downloaded so slowly (if at all) that most of us clicked off in disgust rather than wait for the spinning graphics of cool trainers and stylish 'urban chic' clothes. In most cases, you could have got into your car, driven into town, parked, had a latte, found a store and spent 30 minutes trying to get someone to help you, before anything from Boo had shown up on your computer screen.

Boo's bust has (of course) been rationalised by its dynamic executive duo. They contend: Boo was trying to launch a technology ahead of its time. Boo tried to launch in too many countries at once. Boo needed a bit more time and money (The company burned through $135 million in its short 16-month life).

But a quick sift through the clippings, and Boo's over-ambition was apparent months before the liquidators were called in. So, why did the entrepreneurs ignore the handwriting on the wall? They say that the biggest problem was lack of guidance. Their investors, they insist, let them down. Never mind that these included the Benetton family (of the Italian clothing chain fame) and the online venture arm of Bernard Arnault, also chairman of LVMH - one of the world's biggest luxury retail groups.

So, what are we to make of this? First, there is an incredible amount of arrogance in the dot com sector - and it's not surprising. There are already quite a few 20- and 30-something e-billionaires thanks to the world wide web. Add to that a surplus of venture money looking to bet on the "next big thing" and you get high valuations and a lot of confidence.

If someone waves money at you what do you do, turn him or her down?

But be advised: there will be more Boos falling by the dot com wayside.

The reason is simple: too many ill-thought out ideas have had easy access to capital. It's been a wild and, for some, a lucrative - ride. But now the brakes are being applied.

Beginning in March, the lustre of the technology market began to fade.

The momentum investing that has driven stocks like Psion and Baltimore Technologies to the top of the FTSE - and has powered the markets upward on both sides of the Atlantic - began to down shift. Some of the tech darlings will be relegated back to the lower echelons, not because they are suddenly bad companies, but because their values, in some cases, had become too hot to be sustainable.

Some savvy analysts out there have even started to use the v-word again: value investing, you remember - when you buy the stocks of companies that actually have revenues and profits.

call it Warren Buffet's Revenge. He's the value investor that leads Berkshire Hathaway and is called, by some, including my father, the Oracle of Omaha, the genius investor. But, last year, his value-driven strategy didn't work and the value of his portfolio (and those who sided with Berkshire's shares) fell, rather a lot.

Earlier this year, surrounded by the shrivelled fruits of his 1999 investment strategy he famously said that it would have been better for his shareholders if he had spent the last year in the cupboard. But, that was then and this is now.

Whether Warren's revenge will be short or long-lived, it is certainly crafting an environment today where getting a high valuation on your dot com is getting a lot tougher to achieve. That's why so many companies have pulled their IPO plans.

From UK video-on-demand company Yes TV, to Swedish online group buying firm Let'sbuyit.com, the sentiment has now shifted. Companies either must wait to tap the markets or, as is the case with Chello, the Internet arm of United Pan-European Communications (UPC), cut their valuations way back.

The changed climate is also causing venture capitalists to tread more carefully and take more care about who and what they are pouring their money into. And if they are publicly traded venture capitalists like Durlacher, CMGI and NewMedia Spark then they have gotten their own dose of market reality. CMGI's stock peaked at over $150 (£100) a share in January. By the last week of May they were trading at around $44 (£29). It's called 'reality check dot com'.

So, what dot coms stand a chance today? Obviously, ones that actually use the Internet as a means to provide a business or consumer service that can't be done as well, as cheaply and as fast offline. But the field is narrowing rapidly. Online bookseller Amazon.com has a big head-start on bricks-and-mortar retailers - but how many more online book stores do we need?

The other factor is scale. The online discount travel shop, Lastminute.com, has a catchy name and idea, but will it be able to stand up to the combined might of its new competitor - a group of airlines recently banded together to sell discount tickets on the web? Perhaps, but Lastminute.com will have to provide top service and at least equivalent discounts if it wants to continue to stand in that firing line.

The arrogance quotient among dot coms will likely solve itself, as the available pool of investment money becomes more discerning. The Internet and the changes it is bringing to both old economy and new economy businesses is not going to go away. The only question is: how many of the dot coms will make it and what twill be their worth?