Dot-com shutdowns slow down

Internet companies did a better job at keeping the grim reaper at bay in July, new research indicates, as closures in the industry dropped significantly.
Written by Dawn Kawamoto, Contributor
Internet companies did a better job at keeping the grim reaper at bay in July, new research indicates, as closures in the industry dropped significantly.

Thirty-two Internet companies closed their doors in July, nearly half the level seen in the previous three months, according to Internet research and services company Webmergers.

"This is startling. We thought the number of shutdowns hit a plateau in June, but we were careful not to say we thought June was at its peak, said Tim Miller, president of Webmergers.

"This month's decline is so dramatic," he said. "There may be some seasonality to the numbers, but it's hard to imagine companies would just delay shutting down because it's summer. Death takes no holidays."

One company, however, apparently was not as lucky.

Ten Square, which was backed by oil giant Chevron and others, sent an email to employees Monday announcing its plans to cease operations Tuesday and "move immediately into liquidation proceedings", according to a copy of the email reviewed. The company had been seeking funding for the past seven months, according to the email.

A former employee said the notice came as no surprise.

"They told us a couple of weeks ago that funding was an issue to keep the doors open, said the employee, who spoke on the condition of anonymity. "They were optimistic till the very end."

But chief executive Scott Slinker said Wednesday that the company is not in the process of liquidating or filing for bankruptcy.

"We are still continuing to pursue seeking funding," he said.

One high-profile company that closed its doors during July was Webvan, which filed for bankruptcy protection. The company, which was once viewed as the leader in the online grocery market, fought a long financial struggle that ultimately it could not overcome.

Business-to-consumer e-commerce companies represented 26 percent of the 367 Internet company shutdowns since the start of the year. That is a smaller amount than the 43 percent ratio last year, when 225 companies closed shop.

Internet company closures are on track to far surpass last year's figures, and Miller said the jury is still out on whether July's drop means the worst is over. The figure for July had not been that low since September, when 22 Internet companies folded.

"We expect a lull in July and August, and then a spike in shutdowns in the subsequent months as investors prepare for the end of the year and holidays," Miller said.

Internet companies looking to survive typically seek infusions of cash from investors or a "white-knight" buyer.

Mergers and acquisitions in July fell to US$3 billion among 99 Internet-related deals, half of the US$6 billion in deals spread among 98 companies in June. Companies that provide the nuts and bolts for the Internet captured the largest amount of merger and acquisition deals, bringing in US$1.8 billion among 30 deals.

Some of the July buyouts included Nokia's US$421 million acquisition of Internet Protocol routing company Amber Networks and Motorola's US$300 million purchase of broadband player RiverDelta Networks.

Editorial standards