With balance sheets awash in red ink, time is running out for many Internet start-up companies, according to some IT industry experts.

“We believe the vast majority—perhaps 95 to 98 percent of all dot com companies—will fail over the next 24 months,” said Michael Fleisher, president and CEO of Gartner Group, Inc., based in Stamford, CT.

Fleisher shared his grim prediction during his keynote address at Gartner’s Spring Symposium/ITxpo 2000 in San Diego yesterday. He described this doomed category of businesses as “pure dot coms.”

“The true blending of traditional and Internet business models—and not the pure dot-com model—will be the winning formula,” he said.

The few Internet start-ups that survive this massive shakeout will likely need to partner with an established, “old economy” business. Fleischer said every industry will develop hybrid models.

Following Fleisher’s speech to more than 2,000 people, a panel of executives and Gartner analysts reacted to his forecast that dot coms face failure within two years. But one panelist, Paul Sagan, president and COO of Akamai, offered a more optimistic viewpoint.

“My guess is that most [Internet start-ups] will get consolidated. They won’t have to shut their doors…they will get more funding, then get consolidated by the Amazons and Wal-Marts of the world,” said Sagan.

He also speculated that employees would not suffer since there’s a shortage of experienced IT professionals. Sagan said most dot coms have created something worth selling because they’ve created a community and a valuable customer list.

Not so, said Vasant Prabhu, president of Information and Media Services at The McGraw-Hill Companies. Prabhu said it’s difficult to measure whether the start-ups have created a worthwhile brand or customer base. He said the first round of failures will happen among e-tailers. Then, he predicted that possibly as soon as six months from now or in the first quarter of 2001, business-to-business dot coms will also face a “bloody shakeup.”

“It’s one thing for me to buy a book on Amazon. I make the decision and there’s not risk. It’s another thing for a particular purchasing department to fundamentally change the way it buys,” said Prabhu. He said B2B start-ups can survive only if they have enough capital to wait out the slow process of attracting customers and creating community.

Gartner predicts the dot com shakeout will provide opportunities for investors. During yesterday’s presentation, analyst Al Lill said Gartner’s prediction is that smaller, pure dot coms will be picked up by larger Internet companies or traditional companies, at great discounts.

During Fleisher’s keynote address, he said the blending of dot coms with traditional business models is just one characteristic of a new phase of development in the Internet. Fleisher cited two other key trends:

  • B2B will play a more important role in the Internet economy than business-to-consumer applications.
  • The era of wireless and broadband Internet applications is here.

Fleisher recommends that companies in both the old and new economies—should embrace these changes to remain competitive.