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.
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.
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.
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.
An important element in the rise of dot-commerce is the plain fact that most shopping is done by women—and women are busier than ever. Studies and surveys support this. A Reuters story, for example, headlined the fact as follows: "In terms of purchasing, it's a woman's world." Reuters then cited data from NDP, a market research firm. More women work than ever before. The female workforce participation rate in 1950 was 33.9 percent, had risen to 51.5 percent by 1980, stood at 59.2 percent in 2004, and was projected to 59.7 percent by 2014 by the Bureau of Labor Statistics—but BLS projections in the past have tended to be too conservative. Meanwhile male participation rates have slowly slipped. Pressured by work and family demands, women find it very handy to accomplish particularly seasonal shopping chores online. A consequence of this has been very dramatic growth in e-commerce even as the institutional base of that commerce (the dot-coms themselves) was sorting itself out.
The compounded annual growth rate of total retail sales in the U.S. was 4.8 percent a year between 2000 and 2005. In the same period, online retail sales rose at a staggering annual rate of 26 percent a year. E-retail is still but a tiny fraction of total retail (2.3 percent in 2005), but it was almost invisible in 2000 (0.9 percent). This sector, which is regularly tracked by the Bureau of the Census (whereas industrial online sales are not), had sales of $27.2 billion in 2000 and $86.3 billion in 2005. The dot-coms that had survived the bust have done very well indeed—as have countless small sellers on the Internet who never tried for high visibility but, instead, simply allowed the search engines to find them.
Small businesses that create a Web site in anticipation of boosting sales are likely to have one of three kinds of experiences. They may experience no sales at all, hardly even an inquiry—and those few that come are off the mark: the visitors are non-buyers or buyers who didn't bother studying the page. Others may experience sporadic sales activity—but insufficient to organize the channel properly because the transactions are few and far between. Yet others experience a slow start but begin to feel an increase in volume; this motivates them to build up the site, to feature specials, to capture the buyers' particulars in a database, and to spend money on direct mailings to such customers when special promotions provide an opportunity.
Assuming that all things are equal—that all the sites are well-designed, attractive, and have appropriate arrangements for accepting credit cards—success will likely to be due to factors that especially favor the dot-com mode of distribution.
Three factors are most important. First, the product or service should be difficult to find by just hopping in a car or picking up a phone. Consumers won't turn to the Web if they can easily find the product—but difficulty getting what they want will drive them to the Internet these days, and the business they find is likely to make a sale. Second, and alternatively, the product should be seasonal in character to take advantage of the busy shopper's determination to stay out of traffic and crowded malls. If a seasonal product, in addition, is somewhat unique, so much the better. Third, the product or service should be easy to find on the Web—which translates into thoughtful Web design. The price, of course, must also be attractively low.
Unique products need not be mass-market products but they should be difficult to find. Examples are specialized tools and supplies, e.g., caning supplies for someone wishing to refinish a chair; hand-made rag dolls or components for making your own; ethnic clothing, decorations, flags, emblems; unusual musical instruments and sheet music; and many other items of this nature.
The biggest shopping season is Christmas—but Valentines Day, Easter, Mother's Day, Thanksgiving, and Halloween are also busy times for women who then try save time by turning to the Internet. Events such as weddings, Christenings, birthdays, Bar mitzvahs, and funerals may come at any time and present opportunities. It is interesting to note in this context that the flower business, highly seasonal, developed a distribution system based on telegraphic communications long before the Internet was born—and, furthermore, that that business has now migrated to the Internet too.
Search engines gather their information by using so-called Web-crawlers. These crawlers visit new and updated Web-sites and gather information about them automatically. Keywords gathered are then fed to the search engines along with other links used by the site. Some sites are designed in such a fashion that crawlers give the site low rankings for a variety of reasons. Sometimes a site ideal for dot-commerce may be very attractive on the screen but, internally, may be designed so that search engines do not feature it properly. For this reason, expert help in site design is well advised to make sure that the page has optimal visibility.
Anderson, Chris. "Chasing the Long Tail." Information Age (London, UK). 20 November 2005.
Anderson, Chris. The Long Tail: Why the Future of Business is Selling Less of More. Hyperion. 11 July 2006.
Dieckmann, Heike. "Full circle: Shoplet.com is one of the few profitable survivors of the dot.com boom and bust period of the late 1990s. And the Web as a sales and marketing channel is very much here to stay, says Founder/CEO Tony Ellison." Office Products International. October 2005.
Doyle, T.C. "Dot-Coms Woo Channel—Ready To Run." VARbusiness. 6 February 2006.
Edwards, Jim. "Dot-Coms Stampede into TV Product Placement." Brandweek. 28 November 2005.
Foroohar, Rama. "A Second Dot-Coming: A poor combination of online ads, broadband speed and loyal customers is making content Web sites a hot commodity, and media giants are buying them up." Newsweek. 31 October 2005.
"In Terms of Purchasing, It's a Woman's World." Reuters. 27 January 2006.
Moschella, David. "IT, Dot-Coms and 'Getting' Business." Computerworld. 7 November 2005.
U.S. Census Bureau. "Quarterly Retail E-Commerce." Available from http://www.census.gov/mrts/www/ecomm.html. Retrieved on 5 March 2006.
U.S. Department of Labor. Bureau of Labor Statistics. "Labor Force (Demographic) Data." Available from http://www.bls.gov/emp/emplab1.htm. Retrieved on 5 March 2006.
Zamoiski, John. "Facing an Ad Squeeze, Dot-coms Should Eye New Marketing Solutions." Brandweek. 1 May 2000.