In Focus

TwoQuestions.com

Have you seen the new Michelob Light commercial? (Hint: It airs during NFL games.) The commercial has a group of people standing on the floor of the New York Stock Exchange ka-chinging Michelob Lights in the air and sippin' from their bottle. They are celebrating the IPO of their new company, "Dot-dot.com".

A runner on the floor of the exchange says to another runner, "Hey, what does this 'Dot-dot.com' company do?"

"I don't know," the other guy replies, "But they're drinking Michelob Light. Buy! Buy! Buy!" The whole stock exchange goes berserk for "Dot-dot.com" stock. People are buying up shares like I buy beer at closing time. Then, an executive from "Dot-dot.com" says, "Hey, it looks like we're outta Michelob Light." Well, before you can say, "Call Karin a taxi," everyone is selling! In a New York minute, everyone unloads their shares of Dot-dot.com. and just because they are out of beer.

How silly does that sound? Selling a stock because they're out of alcohol? Buying a stock because the guys were Michelob drinkers? Absurd. But wait. there have been reasons just as silly in the past that to some seemed perfectly logical. People were buying into a company because a Hollywood star was "the name" behind it, or because it was a website just for women, or it was the first website out there to sell cars. Who needed to look at the fundamentals when it was an Internet company? Anything that had a dot-com after its name had its shares scooped up in bunches by people who were thinking it would make them rich.

For a couple of years, any and every dot-com that went public skyrocketed just because it was a dot-com. Investors were in and out in a day, unloading their dot-com stock to the next sucker. It was almost pyramid-ish. Get in early, make a few bucks, and hopefully get out before the business goes under. Too bad for the guy after you.

This is not Chicky. This is dumb. It was the gold rush all over again.only most people were fooled. Two questions we need to ask before we even pull a dot-com company through the Chicks Dozen are:

1. How do they plan on making money?

2. Is there a brick and mortar store that already does the same thing?

Priceline.com is a novel idea, selling airline tickets over the Internet to the cheapest bidder. But how do they plan on making money? It is an expensive business. Operating a fast, searchable Internet site and selling goods at bargain basement prices ain't cheap. Nor is it smart. As soon as the airlines get their own search engines up and running, what's to stop them from doing it themselves? Top that off with astronomical advertising expenses in order to get your name out there. you can hear them gasping for air. It is a business model that is being questioned now that its stock price has tumbled more than 95% off its 52-week high. They have yet to make a profit. Priceline.com closes a door every day, with executives leaving, and licensees folding. Scads of people have lost a ton of cash, because they didn't ask themselves Chick Question Number One: Where do they plan on making money? Woops.

Onto Chick Question Number Two: Is there a company in the real world that does the same thing? Does it makes more sense to buy from the brick and mortar or online? Take Pets.com for example. They sold pet food and supplies over the Internet. At first glance, it looks like a great idea. Point, click, charge to your credit card, and then the dog food is delivered. But, week in and week out. shipping gets costly. If you have a Pet Smart right down the street, it isn't that hard to just stop by on your way home from work and pick up a 20 pound bag all by yourself and save the $12.00 shipping. This is exactly what happened to Pets.com. They too have folded, as there weren't enough Fido owners who could afford the freight. (I did love their commercials though.)

Eventually, all the brick and mortar stores will be online. It's a lot easier for an already established company to add online service to its experienced operating corporation, than it is for an online start-up to compete with a giant. The brick and mortar store has years of business practice, the skilled personnel to handle each department, and a brand preceding it. The start-up dot-com has to learn how to be a business, while being the business and then competing with other businesses. all while trying to develop a household brand name. It's a crash course in Starting and Running a company, and they just hope to come out somewhere in the middle. If there is a brick and mortar store that does the same thing, I'm betting they'll eventually win the competition battle.

These were only two examples of websites that tried to become businesses, but failed because they couldn't pass the two dot-com questions. There are scads of others. A lot of investors failed along with them because they didn't think before they bought or ask the two dot-com questions. They thought if the guy drank beer that was reason enough.