Pets.com, one of a handful of online stores in the US catering to the needs of small furry domestic companions, can count itself lucky. Riding the wave of enthusiasm for Internet stocks, the one-year-old company made its debut on Wall Street in early February, raising $82.5 million (€84.7 million) by selling shares to the public.
It could be one of the last for a while. Despite the glut of cash that seems to be available for almost anything involved in technology-related industries, online retailers such as Pets.com have suddenly fallen out of fashion. They have been joined in the doldrums by online media companies and other enterprises that sell things over the Internet to consumers or lure them with advertising-supported free services.
The fall of business-to-consumer or B2C Internet companies follows a three-year parade to Wall Street. "People bought B2C companies regardless of whether they were good or bad, thinking they would just go up," says Mr Paul Manca, chief financial officer of Pets.com. "Now the market's closed. People got nervous."
European stock-market investors may have only just started out on their own Internet-buying binge, but they have been infected with some of the same jitteriness. The shares of two widely awaited stock market newcomers in London Lastminute.com and Lycos Europe ended a deflating week below their issue prices. Stock-market fashion has always been fickle, of course. Wall Street's attention has now shifted to a new wave of Net companies - those involved in Internet commerce between companies, or in building the plumbing on which the Net depends. The stock market has been pumping billions of dollars into these companies this year, and their share prices have been rising rapidly as a result.
But this ocean of cash is no longer keeping B2C companies afloat. Most of these companies lose money, and expect to do so for the foreseeable future. If they are no longer able to raise fresh equity, they could eventually run out of cash. To add to their fragility, few can borrow to tide themselves over. Bond market investors and banks are not eager to lend to companies that have yet to show they can earn a return on their cash, says Ms Marie Menendez, an analyst at debt rating agency Moody's in New York. A timely reminder of this fact has served to increase the nervousness on Wall Street. Peapod, one of the first online grocers to set up shop, is facing an uncertain future after failing to secure an expected injection of $120 million last week.
Such incidents should not come as a surprise. "None of these B2C companies said they'd be profitable in the next 12 months. They all said they'd be back to raise fresh equity," says Mr Manca at Pets.com.
But with the cash tap in the US temporarily turned off, many investors are discovering a new sense of realism. The result is likely to be an acceleration of a process that has already become evident, the emergence of a handful of online consumer powerhouses, and the passing of the Internet's early, anarchic days.
"B2C is absolutely not dead," says Ms Mary Meeker, the Morgan Stanley Internet analyst who was one of the first to champion the new online medium. "It's just changed. There are simply a handful of winners."
These early winners stand to fare best if the stock market stays closed a while. For a start, upstart competitors will be starved of the capital needed to join the increasingly crowded World Wide Web.
The lack of a fresh supply of cash to burn is also likely to push weaker companies into the arms of the new Internet giants. "The world doesn't need all the e-tailers," says Ms Menendez. "There is lots of excess capacity. They're all buying computer servers and other hardware, taking space and hiring people."
Come the next Christmas shopping season, if not before, makers of everything from toys to computers are likely to grow wary of providing many of these companies with goods on credit, she says. That will make it even harder for them to operate.
Mr Henry Blodget, Internet analyst at Merrill Lynch, predicts that three quarters of Internet companies will never make a profit and will either be taken over by stronger companies or run out of money and file for bankruptcy. Ms Meeker at Morgan Stanley adds that 90 per cent of Internet stocks are over-valued. Both agree that a handful of companies will emerge from this group to become the Microsofts and Cisco Systems of B2C.
The early contenders have already emerged, and are now moving rapidly to consolidate their power. America Online, which counts two out of every five Internet users in the US as customers, is buying media group Time Warner. Yahoo is back in talks to buy eBay, the dominant online auction company. Amazon.com last month raised another $690 million, much of it in Europe, to further its ambition to become a global Internet superstore.
The financial might of these companies is already starting to be felt. Amazon has made a spate of investments in small retailers in recent months, and plans more. For the companies involved, most of these investments come with a valuable link from Amazon's site that could bring them the lifeline of a big new audience. It comes at a price, since these companies also agree to make fixed payments to Amazon over a number of years.
Such networks of alliances similar to the keiretsu groupings of companies, familiar in Japanese business have become a staple of the new Internet economy. Young companies are clustering together for mutual support under the wings of established companies.
Amazon itself has yet to make a profit, but it does have $1.3 billion of cash in the bank, a useful weapon if the stock markets remain hostile to B2C companies.
