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Consolidation of the Internet industry

Dotcom shake-out to produce healthier and leaner businesses

For a relatively new industry, the Internet sector has experienced more than its share of ups and downs. The bad news right now is that prevailing market sentiment towards the trade is not about to improve anytime soon. However, some comfort can be derived from the fact that the revolution that has taken Hong Kong by storm some 18 months ago is no passing fad and has become an integral part of mainstream society.

According to Peter Hamilton (left), chief operating officer at Chinadotcom, technology companies in Hong Kong had a hard time raising funds before the boom in mid-1999. When he initially set up his company five years ago, information technology ventures did not feature highly on investorsÕ agenda. Avenues for raising funds were limited and venture capital was almost unheard of back then.

Around mid-1999, interest in technology and the Internet underwent a dramatic paradigm shift. Businesses that were considered to be in the TMT (technology, multimedia and telecommunications) mould became the darlings of the investment com-munity. The industry developed at breakneck speed with dotcom start-ups sprouting up in record numbers.

The tide began to turn eight months later as the sustainability of some businesses was called into question. Increasingly, investment decisions were based on fundamental issues such as revenue and profit rather than on how quickly a firm was growing.

It was around this time that the Growth Enterprise Market (GEM), designed to cater for high-growth, high-tech fledgling businesses without the track record for main board listing, was launched on November 25, 1999.

Since then, the GEM Index has fallen by more than 70 per cent from a peak of 1,021.74 on March 22, 2000. Investors' love affair with the Internet appeared to have ended as quickly as it has started.

But Mr Hamilton said he feels that the current disenchantment with high-tech companies is being overdone, likening it to throwing out the baby with the bathwater.

The shakeout that the industry is now undergoing has seen erstwhile investment bankers, lawyers and other professionals returning to their former vocation leaving behind a hardcore group of "indigenous" tech-heads.

He was optimistic that the rationalisation process will result in a leaner and healthier industry as the better-managed and profitable dotcoms in the B2B and B2C fields position themselves for another bull-run which is likely to be more sustainable than previously. B

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