alright, i need some advice here. What were the economic reason that the dot com businesses failed so badly? I figure it was because interneet advertisements did not generate enough revenue. Any other reasons?
Its because most of them had a poor business plan.
Stock prices for these companies were based upon company revenue - instead of profit. Revenue for some of these .coms, like amazon, are super high but because of operating expenses they can't even break even (a couple can only just break even and even fewer can make a profit).
These companies were building brand names and setting up their business but they never actually made a profit and after a while investors got sick of throwing money at a business with little chance of ever making a profit.
They had limited understanding of how the markets work. Some of the b2c companies were betting on very rapid change in consumer behaviour which did not happen.
A business model based on advertising revenues could be ok in a more mature business, think of something like directory services or radio. In a newly established business you have to give big discounts to advertisers for a long period which erodes you revenues. I don't know exactly from the dotcom business but a newly established newspaper gives up to 90% discount dropping down to maybe 20-30 percent during a three year period. Also the dotcom industry since it's so young is the first to go when times get a bit rough and companies cut back on adspend.
A lot of b2c companies had no clear understanding of the difference between being a low price and low cost leader. We did see a lot of great deals on whatnot in the b2c industry. However it's not sustainable to compete by being a low price alternative if you are not low cost leader because you get negative margins. Most of these companies had to high costs because of limited competence in distribution and inventory management.
I don't know if you ask specifically about e retailers only but for many of the internet consulting firms the problem was that these companies should not be listed at all but rather partnership owned. You don't see big lawyer firms getting listed or management consultants. The reason is that the employees represent all of the companies assets and this makes for conflicts between them and shareholders.