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	<FONT FACE="ARIAL","Verdana" SIZE=2 COLOR="#006666"> SIGN UP FOR THIS DAILY NEWSLETTER _______________________________ DAVENETICS........connecting the dot coms* PREDICTIONS... REFLECTIONS... and REQUESTS... Looking Forward to 2001 Dave Pell _______________________________ {the official newsletter of the next 365 days} subscribe at: (http://www.davenetics.com) >>> YOUR YEAR 2000 AFTERNOON FIX DRAWING LINES OF CODE IN THE SAND --- The major trend we have been discussing during the course of the shakeout of 2000 (OK, so some people have been talking about that for about 30 years) will take firm hold in 2001. The hard times will yield software. The growth in the software business was surging for decades before anyone heard of the web. The internet certainly accelerated growth in this market, but the dot com shakeout will not have the opposite effect. From early start-ups to eBay, we have seen companies spin off units to package and sell the software they built for their own purposes. Regardless of who wins between start-ups and traditional players, they will all need software and services and this is where the money will be. The use of the internet as a medium for business, communication, research and entertainment is just beginning and we have only scratched the surface when it comes to updating legacy systems behind the firewall. Employees are being thrown overboard to keep companies afloat during December, but you can still drop an engineer on any block in the Bay Area or any other technology hotbed and they will be picked up in a hurry. Coincidence? No. Bet on software. ....................................................................... A FUNNY THING HAPPENED ON THE WAY TO FISCAL RESPONSIBILITY --- We learned something important. When the dot com trust-fund money dried up, cash-poor start-ups were forced to put the lid on advertising via traditional media channels. Instead, they shifted their limited marketing budgets back to the web and email. And for most players this resulted in not only a savings of cash, but a better return on investment. Internet advertising is experiencing growing pains, but it will settle in and establish a strong foothold in the second half the year. It works. ....................................................................... GADGETERIA --- It doesn't take much foresight to predict that connected gadgets and handheld devices will be in the limelight during the next year. Buying a PC is easy. Keeping one up to date and operating properly can at times feel like a full time job. (Fitting one into your front pocket can be embarrassing.) Wireless handheld devices will change all that as they move to adopt auto-updating software. Your phone will ring and on the other end will be the latest updates of your operating system and other software. Take the call. ....................................................................... subscribe at: (http://www.davenetics.com) ....................................................................... SECURITY BLANK --- Speaking of software companies, 2001 will see the launch of several new security startups. Security and privacy issues will continue to top the headlines (even more as the internet becomes a medium for the masses) and the issue of data security for internet companies is far from resolved. The fixes will increase business and lower insurance costs. If you build it, they will stay away. ....................................................................... CONSOLING CONSULTANTS --- Few sectors have experienced as much pain as internet consultants did in the latter half of 2000. Up until that point, there was a glut of cash-rich VC-backed companies racing to get products to market faster than other cash-rich companies backed by other VCs. Traditional companies felt the pressure to alter business models and get web savvy and they all raced to develop new internet properties. Sales at internet consulting firms was about picking up the phone and figuring which project would pay the most and which start-ups would part with the most equity to get to the front of the line. Then the VC money stopped. So did the pressure on traditional companies and they returned to normal development cycles. Then ... the big hurt. Many were lost, almost all were downsized. The survivors will win big in the latter half of the coming year as the market supply and demand realign. But the road from here to there could make for a good Snickers commercial ... "Not Going Anywhere for Awhile?" ....................................................................... (NO) MO' MONEY --- We will see a sharp number of venture capital firms lay off partners or shutdown altogether. Among the victims will be some of the high fliers born during the internet age. By the end of 2001, it will not surprise observers to read stories about venture funds that raised hundreds of millions and tossed up a donut. ....................................................................... BOOTSTRAP IT ON --- Let's briefly review the typical way in which a venture-backed dot com imploded last year. First, you raise a lot of money. Generally, investors travel in herds so there is a likelihood that you have a few competitors that are on a parallel track, so the race is on. The message? Spend the money. Get the employees. More people means a bigger company means a bigger lead. Then the money dried up. The rest of the world looked at you like you were a fool. How could you have such a high burn rate with no revenues, no profits in site? But that was the game and when the final whistle blew, you were left with a ship too big to turn quickly and investors who were looking to pick away at your remains. And it all happened so fast. But let's look beyond the venture side of the things and ask ourselves a few philosophical questions: Does the web drive more business? Does it enable you to better manage your business? Can you reach more customers? The answer to questions like these, in general, is yes. Let's not forget that even in the B2C space, customers have done their part to make this work ... just not enough to support a storefront that has burned through a hundred million worth of tchochkies. Where am I going with this? Well, the web works and it especially can work for small businesses who want to use the web to extend their reach and efficiently improve the bottom line. Look for the continued success of companies that bootstrap it on the web and let things grow organically. This will true for content providers as well. Ask the average freelance writer if the web has been good for business. For that matter, ask the same question of a few journalists who are laughing at the shakeout and saying I told you so. While were at it, ask the same question to the folks behind F***edcompany.com. The web works. It's the funding environment that broke. ....................................................................... subscribe at: (http://www.davenetics.com) ....................................................................... RE-RESEARCH --- We saw a few content sites bite the dust this last year, but there is no doubt that content, games and entertainment will ultimately thrive on the web. The advantage is with the existing brands, but it has never been a better time to give it a shot. Just learn from the rules above. All it takes are a couple of index fingers and a send button to publish on the internet and Matt Drudge will not be last internet media creation. ....................................................................... WANTED ... LITMUS TESTERS --- The net is no longer the playground of nerds and geeks. This changes the playing field when it comes to testing a new idea for a business. If you have an idea for a consumer- facing internet business ... ask you friends, family and neighbors. If they don't get it ... Stop. There are two kinds of businesses that will succeed in 2001. Those that anyone can understand and believe in, and those so technical and complex that it will have most observers at a loss for which AOL keyword to type in next... ....................................................................... BACK TO SCHOOL --- The old schoolers who built some of the core technologies and models that made the foundation for the web will be back to startup a new crop of companies. On the contrary, we will see a quick end to the MBA-ification of the startup world. By next Fall, B-schools will cut back on their high-tech entrepreneurial courses and re-focus on the fundamentals. ....................................................................... WHO TURNED OUT THE LIGHTS? --- Speaking of fundamentals, while I believe that the tech market (soon to be cleaned of remnants of companies that never should have gone public) will rebound, I have fears about the overall economy. Why? Because the markets are about perception (as we learned the hard way this year) and there is great concern about George W. Bush in the very areas (the coasts) that drive our financial markets. Bottom line: on Wall Street, giant belt buckles and cowboy hats are just plain scary. The first 100 days of W's Presidency will be absolutely critical. Note to Greenspan: Stay Well, Baby. ....................................................................... WE GET THE MESSAGE - THERE ARE NOT AS MANY INTERNET PARTIES! --- This is more of a request than a prediction. Let's put an end to the obsession with dot com failures, the slowdown on the party scene, the equity drops of suffered by people in their twenties and the general "I told you so..." attitude among some of those that cover this industry. Everyone told everyone so. We all knew the day Netscape went public that the valuations couldn't last. This industry has been a beautiful thing to be a part of an the net has made it possible for journalists and creatives to make more dough than ever before. Why the need to gloat over failures of some dot coms? The national television specials focused on greed missed a large part of the story. Most people I have met along the way are in this business because they are thrilled by the idea of working on a project that could be used by millions of people. All the finger-pointing and all of the sob stories about "how my start-up failed" are just plain boring. Let's drop it and get onto the next big idea. ....................................................................... THE KING IS SEND, LONG LIVE THE KING --- Email will become the killerer app. It continued to work when all else failed. Communication - not consumer storefronts - is the core value provided by the net and email is the star. The best things on the net make things easier and faster. Seems simple, but many of the failed business propositions of the past year seemed to go in the opposite direction. ....................................................................... The three stories to watch next year: 1. If AOL and TimeWarner get their deal past final approval, you will see books explaining how AOL used their pre-shakeout stock to buy one the most well-regarded corporations in the world. Just amazing. 2. You have to give Bezos credit. The market changed. The people who spoke of him in heroic terms decided he was now going to be the poster boy for the failures of the B2C world. And what did he do? Nothing. He has maintained that his position on spending and business models are right and stayed the course. If Amazon succeeds, he will really have earned the "person of the year" award he received at the height of the madness. 3. Microsoft may end up staying together after all. Unless George W. has a major change of heart, I doubt he will reassign David Boies to the job and Joel Klein has already stepped down from his position. Does anyone - especially now that Netscape is part of the AOL/TW empire - care enough to push thing to fruition? Other things to keep your eye on during the next year include: TiVo, the X-Box, the race between Palm and CE, DVD ubiquity, the return of Sopranos, iMode, Madonna's wedding and me, tanner. ::::::::::::::::::::: feel free to republish and distribute with appropriate attributions. ::::::::::::::::::::: Davenetics....connecting the dot coms Dave Pell, Chief Dotconomist dave@davenetics.com http://www.davenetics.com (subscribe here) All comments above are solely those of Davenetics. Copyright 2000. All Rights Reserved. Please forward any or all of the newsletter only with a link and attribution. Any comments: http://www.davenetics.com/input.html