Dot-Com Deaths May Be Tailing Off

Aug 01 2001

The dramatic collapse of the dot-coms might have reached its peak, according to a monthly study of failed Internet companies conducted by research firm Webmergers.

A total of 32 Internet companies ceased operations or filed for bankruptcy in July, a significant drop from the previous month's 58 and the fewest since September, according to the report. Still, July's figures were worse than the same month a year earlier, which saw 20 shutdowns.

San Francisco-based Webmergers also reported that 99 Net companies were acquired for $2.9 billion during July. That roughly equaled the dollar value of Internet-related mergers and acquisitions during both April and May, though it was less than half of June's $6 billion total. Thus far, 2001 has seen $32 billion in buyouts.

In its midyear report last month, Webmergers forecast that the failure rate of Internet startups would soon slow. That report suggested that a wave of business-to-consumer shutdowns was coming to an end – but that business-to-business companies were only beginning to see the hardest part of that sector's shakeout. Webmergers attributed the rise in shutdowns earlier this year to the overlap in b-to-c and b-to-b failures.

Both the consumer e-commerce and content sectors have experienced shutdowns at a slower rate in 2001 than in 2000, while b-to-b companies have been failing more frequently since the spring.

July's biggest dot-com failure was Webvan Group, the online grocery that burned through $1 billion in funding before shutting down July 9 and subsequently filing for bankruptcy. Another Web grocer, HomeRuns.com, closed its doors during July, as did charity site operator GreaterGood.com. Also, wireless ISP Metricom filed for Chapter 11 bankruptcy protection.

Webmergers said a significant portion of the month's merger-and-acquisition activity occurred Tuesday – the last day of the month. IXL and Scient agreed to merge Tuesday, while Ameritrade and BSA Security each made relatively expensive acquisitions.

With July's busts extending Webmergers' list of failed dot-coms to 592, the firm estimates that about 7 percent of all Internet companies have gone out of business since the beginning of 2000.