Related Terms: New Economy
Commercially operated Web sites have a "com" extension connected to the site-name by a period (.com). This gave the commercial Web sites the "dot-com" name. Every corporation has a dot-com-style Web address, but the name came to be associated more narrowly with organizations hoping to become major Web-based businesses. A dot-com bubble developed during the 1990s in parallel with the rapid expansion of the graphically-based World Wide Web. A huge scramble to be in on the beginnings of limitless wealth caused the launch of tens of thousands of businesses aiming to do what the pioneer of this category, Amazon.com, the bookseller, had been the first to accomplish, namely to become the single or, at minimum, the dominant force in a given commercial sector. Alongside these new-born enterprises funded by a tsunami of venture capital hundreds of thousands of other businesses also put Web pages on the Internet. Many of these were also (and still are) selling goods, but typically goods they were and are also selling from brick-and-mortar or mail-order operations. These lesser dot-coms did not borrow money or go public: they just used and are still using the Internet as an additional channel of distribution.
The dot-com bubble became a dot-com bust late in 2000. Wikipedia, in its article on the subject (see http://en.wikipedia.org/wiki/Dot.com_bust) put the date as March 10, 2000. On that day the tech-stock-heavy NASDAQ Composite Index reached an all-time high of 5048.62, which it has not reached again; the dot-com bust deepened as the 2000—2001 recession took hold. Venture capital dried up and many .coms disappeared. The terrorist attack of 9/11 in a way symbolically put the final period on the first grand wave of commercial expansion on the Internet. But in the view of most industry observers and Web-commerce participants, the 2000 bust was far from signaling the end of dot-commerce. Rather, it marked the end of a major sorting-out and learning phase. As the 2000s keep marching on, the real structure of Internet commerce—indeed its impact on the rest of commerce—is beginning to be better understood. Many of the well-adapted dot-coms survived the bust and continue to be profitable. The market is maturing.
BEHIND THE BUST
The dot-com bust came about because virtually every major participant aimed at replicating the model pioneered by Amazon: namely to become the single, dominant factor in one market by offering an overwhelmingly deep array of products, selling these in such high volume that purchasing power would lower prices to unbeatably low levels, thus, in effect, creating Web monopolies. Once the model was well known, multiple companies attempted to do the same thing in a given sector faced very stiff competition and had to negotiate with a community of original equipment sellers grown sophisticated and careful. Only one such entity could really hope to emerge in each market. Furthermore, the nature of the business had to fit the model equally as well. Books, music, software, arcane electronic components, mechanical parts, and hobby supplies (for example) lent themselves more readily to electronic commerce than commodities like pet supplies. If a particular pet snack could not be found at the store, well, too bad for Pooch. But the same buyer would be persistent in trying to find that rare book, that vital audio card, or that remastered album by Joan Baez.
The early naive view that being on the Internet was the same as "being on" TV—commanding a predictable number of eyeballs—did not last long. To put a Web page on the Internet—without otherwise publicizing or promoting its existence—was equivalent to hanging a notice on the backside of one's garage—in a spot where, at best, utility repairmen might see it once a year. Heavy advertising was required to do the job—or very deep pockets until word-of-mouth established the Web site. Many people, for example, first heard about Amazon.com from a colleague; it took the company a long time to build its massive brand identity. Therefore market entry required not only huge expenditures in assembling saleable merchandise and creating a mirror of these on the Web, with massive hardware behind the pages holding the databases, and effective mass-market payment arrangements with credit-card companies, and, often, real brick-and-mortar warehousing too—it required further splashy, expensive, and persistent promotion by TV and other media.
THE LONG TAIL
In October 2004 the Web expert Chris Anderson wrote an influential article in Wired Magazine (of which he is the editor) entitled "The Long Tail." An expanded version of the article was scheduled to appear as a book in 2006. As Anderson himself put it, "The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of 'hits' (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-targeted goods and services can be as economically attractive as mainstream fare." The "long tail" is becoming an important insight in explaining dot-com businesses.
Put into more concrete terminology, Anderson is saying that a major book chain can only afford to stock in its stores books with predictably high sales, but for every such book there will be many hundreds that will never get shelf-space. Those books are in "the long tail." Using a dot-com like Amazon, the buyer can easily find the obscure book and order it online. It will arrive within days. From the online bookseller's point of view—who need not stock that book in its own warehouse but can order it drop-shipped to the buyer—selling a million different books of this type is equivalent to selling one book a million times. But the same will not be true for the physical retailer who cannot stock the obscure books. What holds for books holds for other similar products where uniqueness matters. The category includes many technical devices and creative products like music, art, and writing. Anderson argues, on the one hand, that Web distribution is helped by its ability to provide virtual access (a picture or a paragraph stands for the product) both to popular and "long tail" products; on the other hand, Anderson suggests that production itself, in the future, will evolve in the direction of more and more diversity. Whether both views hold, the future will show. What is evident is that a symbolical warehouse can hold a lot more goods than a physical one.
THE EMERGING VIEW
In the post-bust era of the later 2000s, dot-commerce emerged more and more clearly as a new type of distribution system with the general characteristics of catalog and mail-order sales—but modernized into a dynamic channel. It is driven by 1) access to all manner of goods, many not easily found (the "long tail"); 2) the ability of merchants rapidly to update "the catalog" online while avoiding printing and mailing costs; 3) powerful search engines that point consumers to the products and also present contextually generated ads; 4) fierce price competition thanks to easy price comparison; 5) rapid delivery through commercial "postal" services like UPS, FedEx, and DHL; and, most importantly of all, 6) the sheer convenience of online shopping from the desk at home or, for that matter, the desk at the office.
