AND THE LOSER IS...
Which Webby nominees will be dead this time next year?

by Matt Welch
05.09.00

If you want a snapshot illustrating the cultural Grand Canyon between the crotchety old newspaper business and the freaky-ass Web, look no further than their respective industry awards.

The Pulitzer Prizes, handed down last month by the austere professors of Columbia University, are dominated by names that have been in business since before 1890--The New York Times, Washington Post, Wall Street Journal, Chicago Tribune, Los Angeles Times and Associated Press. This year's _youngest_ journalism winner was the Village Voice, now a graying 45 years old. Even the Pulitzer site looks ancient; the first thing you see is a cover photo of some turn-of-the-century dude with a beard halfway down his waistcoat, and an imposing timeline that starts in 1917.

The Webby Awards, by comparison, are a monument to chaos and obscurity. The chances of anyone actually _recognizing_ all 125 nominees--Metababy.com, anyone? Stile Project? --are slimmer than the profit margins of online retailers. Some nominees--such as the "news" site MediaAttack.com --were launched only this year. Others have already changed their names--e-commerce candidate Accompany.com is now a more assertive-sounding MobShops. And the turnover in ownership and alliances is enough to make even the most dedicated Fast Company reader's head spin. SportsJones, for example, was purchased just days ago by Newcity.com. Disclosure: I have written both _for_ and _about_ the editors of both publications, and Newcity.com is also a sponsor of the Webbys. Got it?

Veterans of the online wars have learned to expect and even embrace a state of constant creative destruction, where business plans change with each new moon, and cash is burned like dry leaves. But after the NASDAQ carnage of the past seven weeks, this year's party has an even more pungent aroma of imminent death. It is perfectly plausible that 10 or 20 nominees will be dead by this time next May, victims of abandonment by a market that once egged them on, or simple casualties of Internet Time's unforgiving pace.

ANATOMY OF A BLOODBATH

For most, life still seemed peachy back on March 14, when the Webbys came out with their nominations. The NASDAQ was four days past its all-time high, and the bookstores were prominently displaying such hopeful new titles as "Dow 36,000" and "Dow 100,000." Then the weekly investor newspaper Barron's came out with a buzz-harshing cover story March 20 called "Burning Fast," complete with a damning chart of 207 Internet stocks with estimates of how soon they would run out of money, based on fourth-quarter numbers.

At least 12 Webby nominees made the list: Salon, with an estimated 10 months worth of cash left; Amazon.com, also 10; eToys --which also owns nominee Babycenter --with 11; Quokka Sports, 12; Garden.com, 17; News.com owner CNET, 20; Launch.com, 21; Nextcard, 29; Stamps.com, 30; Preview Travel, 54; and Webvan, 57.

Though the study, conducted by Pegasus Research International, had its methodology flaws, and though the Internet's unprecedented "burn rates" have long been a matter of public discussion, the effects of seeing such a detailed list of potential wipeouts was a cold splash of water on investors' faces. Within a month, three of the list's top 10--CDNow, Peapod and DrKoop.com --were on the financial ropes.

On March 23, Forrester Research came out with a report cheerfully predicting that half or more of all online retailers would go out of business and/or be bought out in the next two years. Investment gurus and longtime tech cheerleaders Abby Joseph Cohen, Mark Mobius and Henry Blodget piled on with warnings that Internet stocks were grossly overvalued, and then Goldman Sachs--the investment bank that brought so many fly-by-night dot-com companies to market--twisted the knife with a research report naming the most likely online retailers to be picked off by competitors like low-hanging fruit.

Then April 14 happened, wiping out 7.5 percent of NASDAQ's value in an afternoon. Suddenly, investor consensus was that excessive burn rates and below-margin Internet retailing would no longer be tolerated, and companies that expected to keep coming back to the public till would now be cut off. TheStreet.com Founder James Cramer, a fund manager and serial investor in online content companies, announced in a column that "The dot-com gold rush is over."

Content companies had already long fallen out of favor--as I write this, TheStreet.com is trading at $6.875, a startling $64.125 off its all-time high--but now they were being joined by the previously fashionable business-to-business sector, and even Internet-infrastructure stocks. The funding spigot for new companies was suddenly turned off, and only the largest of the large--Amazon, America Online, Yahoo--could be confident about dipping back into the market for more cash.

This is having devastating effects on companies in the pre-IPO phase, and especially companies who were expecting to post losses indefinitely as they built market share. Many of the Webby nominees fall into those categories, and the following is a list of the 10 most likely, in my view, to not be around this time next year.

1. Political Junkie.com, also known as Politics.com, nominated in Politics

If ever there was a fine example of a company conceived at the end of an increasingly ridiculous stock market bubble, it is Politics.com. In an era where you can read fairly comprehensive campaign coverage at every portal, online newspaper and half-decent TV news site in America--not to mention the partisan or nonpartisan organization of your choice and a dozen or so direct competitors--Politics.com believes it is uniquely positioned to win your attention and make money selling that to advertisers.

The site is a collection of campaign news and opinion headlines culled from elsewhere, plus the usual polls, forums, useful links and a campaign-contributor database. That, according to company press releases, is enough "to take advantage of the large exodus of political advertising expected to come from TV, print and radio to the Internet during the coming primaries and elections."

Well, the advertising model has proven thuddingly inadequate for sites five times older and more popular than Politics.com, so it comes perhaps as no surprise that the company has taken to exchanging its shares for things like office furniture. Investors haven't been amused; since climbing to $10.375 in its first days of trading on the less-transparent over-the-counter market, Politics.com stock is down to a nearly invisible $1.34 at this writing.

Meanwhile, the company president and COO resigned in March, just after the most exciting presidential primary season in memory gave way to the current coma-inducing national campaign. Even a bit of old-fashioned cyber-squatting--Politics.com registered GOP.com before the Republican National Committee could get its hands on it--has already been cashed in. With Voter.com, Grassroots.com, SpeakOut.com and Netivation Inc. competing for scarce investment dollars to replenish burned cash reserves, it is hard to imagine Politics.com making it much beyond Election Day.

2. EToys, nominated in Commerce

EToys, once the model for go-go e-commerce sites, is now the poster child for the latest Web Wipeout. The company, which was supposed to "Amazon" real-world retailers like Toys R Us, tore through a mind-boggling $76 million in the fourth quarter of 1999, and has seen its share price plummet from $86 to $6.875.

Company executives didn't exactly boost confidence by dumping their stock options in droves as soon as post-IPO restrictions were lifted. (Director Matthew Glickman just registered to sell another 285,000 on May 3.) Officials are busy talking up their substantial war chest, and fuzzy plans about becoming profitable by 2002 or so, but Amazon.com is already selling about the same amount of toys, and Wal-Mart is finally making inroads online.

Someday soon executives will have to once again pass the hat in the capital markets. Chances are it will be instead snatched away from them, at a steep discount, by someone with an actual history of managing warehouses and the like.

3. Napster, nominated in Music

Napster's troubles have much less to do with the stock market, and much more to do with the tendency for revolutions to turn bloody.

For the last two years, the music industry has watched in fascinated horror while an immovable object--the five (soon to be four) monolithic record companies--has come face to face with the irresistible force of the Internet. Unlike toys, songs and albums can actually be distributed over the Web, and how exactly that is done will largely determine what the music business will look like this century.

On one side the "Majors," represented by the Recording Industry Association of American, have lumbered ineffectively toward a "secure" downloading standard that would reward copyrights and ward off piracy; on the other side a bunch of college students are finding innovative ways to download cool songs for free, rather than spend $15.99 for a disc featuring one song they like.

Napster, a company started last year by one of those students, came up with the infectious idea to allow all its users to browse and download songs from each others' hard drives--in theory sidestepping piracy laws, because there is no central storage unit for the bootlegs. This became so popular so quickly that RIAA and popular bands such as Metallica came down with humongous lawsuits this spring to shut the practice down.

Even though other bands, such as Limp Bizkit, have come to Napster's defense, the lawsuits will be prohibitively expensive to fight, and by the time they are concluded you can virtually guarantee that a newer technology will have taken its place.

4. Garden.com, nominated in Living

The story for this gardening e-tailer is largely the same as that of eToys: a leader in its niche, a one-time favorite among investors, and a victim of the new market sentiment.

After CDNow, DrKoop.com and Peapod veered toward the brink, conventional wisdom was shaken to its roots. No longer was it good enough to be at or near the top of your "space"--now you had to be a market leader _and_ have believable plans to turn a profit soon.

Garden.com stock sunk from a high of $24.125 to a penny-stock low of $3.375, and now hangs by a thread at $6. The Pegasus survey estimates its shelf-life at 17 months. Goldman Sachs in April nominated the company as prime takeover bait.

5. Kozmo.com, nominated in Service

This prediction may fall flat on its face May 22, when this same-day bicycle-to-consumer messenger company is scheduled to attempt an initial public offering. Even if the IPO tanks, or is postponed indefinitely, Kozmo already has big-ticket backers like Starbucks and Amazon.com, who at the least could be expected to scoop up the company should it crash.

But calling this gears-and-rubber business a dotcom is reminiscent of when Wired Magazine thought it could get Internet funny-money for its print product (it couldn't). But most of all, Kozmo's business plan just looks insane:

Last year the company earned $3.5 million. And spent $26 million. It took 2,500 employees to bring in that $3.5 million, and in order to expand to more than a handful of cities it will have to hire many, many thousands more. Sounds like an idea built for an era that now longer exists.

6. Adam.com, nominated in Health

The Internet health-information sector may be suffering from a collective guilt-by-association in the wake of DrKoop.com staggering toward a fire sale--scores of articles have noted the space's 1,700 competitors, the tremendous cost of customer acquisition, and the shakiness of the advertising model.

This is having an adverse enough effect on websites that people actually recognize, such as Webby nominees OnHealth.com and Intelihealth.com. Adam.com, having lost the battle for health eyeballs, is now trying to license its content to those victorious competitors, in a desperate-sounding "business-to-business" play.

"To expand the reach of our content and to allow us to continue to make significant investment in new product development," company co-founder Bob Cramer explains hopefully on the site, "Adam.com is moving away from a destination-oriented business model to a content syndication model."

Investors, perhaps mindful that such models have almost always failed, responded by knocking the stock from $40 to $9.

7. Webvan, nominated in Service

Webvan is betting people want to buy their groceries online, and that an Internet company with startup delivery infrastructure is best served to provide them. Peapod, Webvan's main competitor, sold a 52 percent stake to global grocery giant Royal Ahold in April to stave off collapse, but the future still doesn't look bright. With Webvan's stock falling from $34 to $6.1875, this online grocer is on even shakier ground.

8. Accompany.com; now Mobshops.com, nominated in Commerce

The good news for Mobshops is that it received a $35 million round of financing in February. The bad news is that the market tanked the next month.

Mobshops may have a revolutionary new idea: collect buyers of specific goods into one great mass, then buy at bulk rates that most individuals can never otherwise enjoy. Then again, all online selling has seen frantic races to the bottom of margins, with retailers in many cases selling at a loss to win customers. Mobshops will need to attract enough customers to create buying power, and that means coughing up cash for marketing. Even then, its hard-won customers could flock to any e-tailer crazy enough to sell the same goods for less, which would require even _more_ money for marketing. And where will it go for that?

9. Quokka Sports, nominated in Sports

Quokka is a nifty site that offers some of the best true multimedia experiences on the Internet--dizzying video from Mt. Everest hikes, complete with emailed diaries, music, that sort of thing. The site, executives proclaim, "shrinks the experiential gap between watching and participating."

Unfortunately, collecting and compressing video and audio data over the Internet is a very expensive business, and most big bets based on broadband availability have lost, often spectacularly.

According to the Pegasus survey, Quokka had operating losses of $15.72 million in the fourth quarter. Even the investor relations page on the site doesn't say one word about revenue. The stock, unsurprisingly, has been knocked down from $18.75 to $5.625.

The presentation is too good to go unrewarded, and broadband will indeed proliferate someday, so look for Quokka to be snapped up at a discount.

10. I Kiss You!, nominated in Weird

It's important to end on a positive note. Mahir, the Turkish playboy with a heart of gold and English vocabulary of a savant genius, is now a happy victim of his own success. Since being adopted by the over-caffeinated Silicon Valley set as a sort of Eurasian mirror of their own imbalanced obsessiveness and eagerness, Mahir has been beset with marriage proposals, inundated with traffic, and flown around the world as a favorite pet speaker at Internet conferences.

It's either Dave Eggers' most elaborate hoax yet, or an improbably happy fable for our otherwise troubled times. Either way, Mahir's original I Kiss You will be a distant memory this time next year.

Matt Welch is a staff writer and columnist for Online Journalism Review

Editor's note: Newcity.com is a sponsor of the 2000 Webby Awards, but its coverage of the event remains independent of that agreement.