Dot-coms still hanging on after gold rush

PALO ALTO, Calif. (Reuters) -- Everyone knows about the Webvans and the Pets.coms of the Internet, which shined briefly but brilliantly before they crashed to earth.

No one talks much about some of the others. Companies with dated names like Onvia.com, iPrint Technologies, and eLoyalty also rode the momentum of the dot-com boom but never enjoyed the same celebrity.

Yet many of these second- and third-tier dot-coms have managed through multiple rounds of layoffs, CEO departures, corporate restructurings, falling sales and plunging stock prices to stay in business.

Call them survivors. Or hangers on. But two years and counting since the air started coming out of the Internet bubble, there remain a number of money-losing companies that have ducked the storm. They are still living off their IPO money, still working to become profitable, or, their harshest critics say, just unable to let go and call it quits.

Seattle-based Onvia.com is one of them. Today it has a 21-cent share price and a slim staff of 100. Two years ago, it was trading above $10 a share, had 650 workers, and an ambitious business plan to build a massive Web site linking businesses with office equipment vendors.

When business turned south, Onvia lost all its founders, and a lot of revenue. But it carried on. In a restructuring so sweeping it bears little resemblance to its former self, Onvia has remade itself as a subscription service that informs businesses about government contracts that are up for bid.

Coming down to size
Because it was always fiscally conservative, Onvia ended its first quarter earlier this year with some $90 million in the bank and was able to make a 39-cent per share distribution to its stockholders. Not a lot for those who have lost more than 90 percent on their investment, but better than nothing.

"We're one of the lucky companies that found a niche for ourselves after the bubble burst," said Topher Malarkey, director of marketing strategy at Onvia.

Like so many of the surviving companies that once talked boldly of being the Amazon.com of this or that industry, Onvia now has to adjust to life as a bit player--one which in the latest quarter reported revenues of just $1.6 million, compared with close to $12 million a year ago.

Still it says revenues in its new subscription service are growing rapidly as more and more companies losing corporate contracts seek new business with the government. Onvia is expecting to turn an operating profit later this year.

The highs have been much higher and the lows lower for Internet retailer Buy.com, once a media darling and a serious rival to Amazon.com, which by last year was running so low on cash it almost had its electricity cut off.

Last week, Buy.com emerged from a near stealth mode and went on the offensive, offering a 10 percent discount off Amazon's prices on all books.

Although Buy.com had serious cash-flow problems and saw shares drift as low as 17 cents before it was taken private late last year by its founder Scott Blum, it never really lost its sizable customer base.

"Right now our goal is to do $400 million in revenues a year, which is not a small company," Blum said in a recent interview.

The company discovered that bigger was not necessarily better two years ago when its revenues topped $760 million but profit margins eroded. By last year when Blum repurchased the company he founded, revenues had been halved to around $380 million and money was running out.

Living on rations
"There were days when we thought the lights might go off," recalls Blum. "Now we are trying to show people we are stronger than ever. We are actually going on the attack."

Blum admits to having a taste for the roller-coaster conditions that come with running a startup company, and in Buy.com he has had quite a ride. The company he built was at its peak valued at $5.5 billion; when he repurchased it last year, he paid just $25 million.

Survivor is a fuzzy term when applied to the group of dot-coms that are still standing.

"It doesn't necessarily mean thriving," stresses Derek Brown, an analyst with W.R. Hambrecht in San Francisco, who has watched many of the companies he once tracked go out of business. Many others that have survived thus far face cash-flow problems, dwindling sales, and low morale after all they have been through.

"They are rationing out the food right now," Brown said.

Nonetheless, many remain relentlessly optimistic.

Kal Raman, chief executive of money-losing Drugstore.com recently said he was "feeling great," even after draconian budget cuts that took his staff from close to 700 down to 350. While Drugstore's original chief executive Peter Newpert left the company a year and a half ago, Raman said he is confident he can make it profitable. Even after slashing marketing spending, Drugstore.com continues to grow revenues.

The online printing business iPrint has survived a staggering five rounds of layoffs, and after merging last year with another printing company, is also growing revenues. Although the company's losses remain steep, Chief Executive Monte Wood says he is optimistic.

"We have announced that we are targeting break even for the third quarter, and if there are no further disasters in the economy, we are hoping we can make it," he said.