THE DAY AHEAD: Silver lining amid dot-com demise

COMMENTARY -- In the most depressing time for dot-coms, for their investors and their employees, there's a glimmer of hope. It'll all be over soon.

The natural selection that was predicted in January and put off in April with a series of "Band-Aid financing" moves is now accelerating. Although it's a shame Pets.com's (Nasdaq: IPET) sock puppet is homeless, few folks seeing the big picture would call the demise of the e-tailer -- or any other questionable dot-com company -- a bad thing.

In 1999, we saw an orgy of financing for dot-coms that made absolutely no sense. In 2000, we're paying the price. It's really that simple. The pain was put off for awhile, but the questionable dot-coms are finally folding for good. The survivors -- and the investors that bought into them -- will be much more prudent. Take a gander at Internet Capital Group (Nasdaq: ICGE). Last year, ICG, along with CMGI (Nasdaq: CMGI), could do no wrong.

This year, ICG is "focusing human and capital resources on partner companies with the most potential to return near-term value." In ICG's portfolio, only the strong will survive. CMGI is likely to say the same thing when it gives its outlook on Tuesday.

All this gloom and doom is good news -- sort of. The fallout isn't necessarily a bad thing -- every "high tech" industry has had lots of competitors, followed by lots of losers, followed by a few giant winners. Automobiles, railroads and portals have all seen the same thing.

With a little history as your guide, you can draw some optimism from the liquidations of Pets.com, Mothernature.com (Nasdaq: MTHR), Mortgage.com (Nasdaq: MDCM) and a slew of others, including some dot-coms in Amazon.com's (Nasdaq: AMZN) portfolio. And you shouldn't panic as more dot-coms fold.

Simply put, the losers are leaving, but it's early in the Internet game. That means we could see a few real winners in a couple of quarters.

Now there's a serious domino effect here, which we've documented already. The dot-com demise will hurt everything from Web publishers to newspapers to those "new economy" magazines that have sprouted up everywhere.

But once the fallout ends, we can proceed with our regularly scheduled business models.

More importantly, I get the idea that investors are ready to move on. We get a lot less emails about dot-coms that undervalued. Previous hopes about dot-coms becoming takeover targets have disintegrated.

The contrast in investor perception is stark. When I wrote my Band-Aid financing column back in May my thesis was clear -- dot-coms raising more money only puts off their inevitable demise. The flames were pretty clear too. I was called all sorts of names. I was called a guy who had a morbid fascination with death, a fool who didn't see the big picture and a guy who didn't appreciate "undervalued" stocks.

Bottom line: Investors weren't ready to let go of dot-coms. Now the tone is different. Investors have learned a lesson.

Some readers have proposed that some dot-coms with cash should liquidate before they completely unravel and distribute the money to shareholders. The gesture, which will never happen, would undo a lot of wrongs inflicted by venture capitalists and investment bankers. TDAIN

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