[Linux-Anyway] Fwd: Seattletimes.com: Internet businesses get second chances
- From: Meph Istopheles <Meph@xxxxxxxxxxx>
- To: Linux-Anyway <Linux-Anyway@xxxxxxxxxxxxx>
- Date: Mon, 16 Sep 2002 07:19:00 -0700 (PDT)
The Seattle Times (http://www.seattletimes.com)
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Internet businesses get second chances
Full story:
http://seattletimes.nwsource.com/html/businesstechnology/134536278_btsecondtime16.html
By Michael Liedtke
The Associated Press
SAN FRANCISCO -- Webshots seemed destined to dissolve in the dot-
com meltdown a year ago as its owner, Excite@Home, prepared to go
bankrupt.
But the digital-photo Web site's co-founders lobbied for another
try at developing the enterprise into a profitable business -- a
goal that doesn't look as farfetched as it appeared when
Excite@Home was poised to pull the plug.
About 150,000 new users register at Webshots each week, up 50
percent from a year ago. More important, a significant number of
those users are subscribing to the site's premium services, an
about-face from the carefree days when @Home gave away everything
for free.
"We have a better sense as businessmen what this space is all
about now," said Narendra Rocherolle, one of three co-founders
who bought the site back from Excite@Home eight months ago at
pennies on the dollar.
Webshots, based in Redwood City, Calif., is among a handful of
nearly dead Internet businesses trying to reincarnate themselves
under new management teams.
Gone is the giddiness of the bubble years; it's been replaced by
a no-nonsense approach.
"We've put the crack pipe away," said Chris Kitze, who invested
$9 million of his dot-com fortune to revive Wine.com, one of the
Web's biggest busts, with a strategy that mostly promotes the
sale of premium wines.
"It used to be all about getting the 'first mover' advantage on
the Internet," Kitze said. "Now that people have become more
rational and sane, there is an understanding that it's all about
becoming the last man standing."
Comeback trail
It's been an excruciating education for some businesses on the
comeback trail.
To get its second shot, high-speed Internet connections supplier
Yipes Enterprise Services went bankrupt in April after burning
through nearly $300 million in venture capital.
The San Francisco company had approached dozens of suitors to
sell out to, but couldn't find a white knight.
In financial despair, Yipes laid off hundreds of employees,
closed several regional offices and alienated creditors by going
bankrupt to cleanse its balance sheet.
"It was an ugly process," said Dennis Muse, Yipes' chief
executive officer.
The reorganization helped Yipes persuade venture capitalists to
invest $54 million into a leaner business that emerged from
bankruptcy court in July with more than 500 customers.
Since then, Yipes has been growing by about 10 percent a month
and conserving its money.
"We don't spend any dollar before we absolutely have to," Muse
said.
During the bubble years, Yipes used to spend about $15 million
more than it generated in revenue each month.
The company's so-called burn rate is now down to $2.2 million.
Muse expects Yipes to start generating more cash than it spends
by the end of next year.
Bargain hunting
It's doubtful any of the Internet's comeback companies would be
alive if not for the severity of the dot-com downturn. The market
is so depressed that bargain hunters have been snapping up assets
at deep discounts.
For instance, Rocherolle and his Webshots partners, Andrew
Laakmann and Nicholas Wilder, bought back their site for $2.4
million. Excite@Home had paid the trio $82.5 million for Webshots
in 1999.
"The numbers looked great to us when we crunched them,"
Rocherolle said. Privately held Webshots doesn't disclose its
finances, but Rocherolle said the site's revenue this year will
exceed the sales price he and his partners paid in January.
Yipes faced a more daunting sales job because it had to raise
money from several of the venture capitalists who already had
poured $291 million into the company during the boom years.
For lead investor Norwest Venture Partners, that meant digging
deeper into its pockets at the same time it was forced to write
off $50 million of its previous losses.
"You gulp hard because you have to stand in front of your
partners and tell them you are going to put more money into this
company that already has cost us a lot," said Promod Haque, a
Norwest managing partner who chairs Yipes' board. "In the end,
you have to decide if there is a large enough opportunity to make
it worth going through all the brain damage required to fix the
business. We decided the opportunity is there."
Kitze regards his $9 million investment in San Francisco-based
Wine.com as a steal because venture capitalists poured $200
million into the predecessor companies.
And Kitze can afford to take a chance because he hit the jackpot
during the dot-com boom.
In 1999, Kitze merged his online site, Xoom.com, into the
now-deceased NBC Internet and sold a reported $79 million in that
company's stock. Kitze is so confident in Wine.com that he
already is talking about turning a profit in the fourth quarter.
The prospect summons up a bubble-era specialty -- hyperbole.
"If this works," Kitze said, "it will be the greatest turnaround
in the history of the Internet."
Copyright (c) 2002 The Seattle Times Company
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