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To be sure, many e-commerce companies have hit hard times. And the reasons are legion, such as spending too much to woo customers, choosing a single-product niche, or being late to market. Ironically, some are suffering because of one of the Internet's strengths: some World Wide Web sites allow consumers to quickly find the lowest price for a product, thus buyers can easily sever their tenuous allegiances to one seller and purchase stuff from others.

But Wharton alumni who run e-commerce companies, Wharton faculty members, e-business investors and a securities analyst say that a shakeout was inevitable and that the long-term future remains bright for e-commerce companies with the right product mix, strong leadership and good old-fashioned business sense.

The outlook is especially promising, they say, in the B2B sector, even though succeeding there will be no slam dunk because the notion of B2B as the next big thing has lost a bit of luster, too. Still, there will also be many winners in the business-to-consumer (B2C) arena. A report issued by Shop.org, an e-tailing trade group, and the Boston Consulting Group, notes that B2C e-commerce totaled $33.1 billion in 1999 and is expected to reach $61 billion in 2000.

What's more, say the Wharton alumni and others, the days of a clean separation between pure Internet companies and traditional brick-and-mortar businesses are numbered. Already the lines between these two segments are blurring as companies form "clicks-and- mortar" hybrids. Before long, many pure e-commerce companies will build stores and establish other physical-world presences to supplement their Web sites, while brick-and-mortar companies will develop online presences.

In the meantime, however, the winnowing process will continue, as poorly run, poorly conceived, cash-starved, and late-entrant e-commerce companies hit the canvas or are acquired by healthier firms. Certainly, the months and years ahead will not be pretty for some e-businesses and their backers. Investors who threw money at anything with a dot-com suffix got walloped in April when technology stocks as a whole tanked and took down many dot-coms with them. For many companies, sky-high valuations plummeted to more earthly levels, and the shortcomings of several troubled companies were disclosed for all to see.

The Forrester report, which covered B2C only, paints a dismal picture, at least for the near term. The company says "the tide is turning against [dot-coms], and consolidation will soon steamroll across the weak ones."

Forrester predicts that firms selling commodity products, such as books and software, will suffer declining growth rates and will consolidate by the fall of 2000. In addition, many merchants selling undifferentiated merchandise at razor-thin margins, such as toys and pet supplies, will go under before the Christmas shopping season. But Forrester believes companies selling branded, "high-style" products like furniture and clothing will remain stable until 2002.

The shakeout in perspective

Thomas Gerrity, former Wharton dean and now director of Wharton's Forum on Electronic Commerce, is not convinced that a shakeout began when the prices of dot-com stocks tanked in April. He says the process actually began before that.

"This is a perfectly normal process of innovation and entrepreneurship," Gerrity says. "A lot of new ventures are started all the time in any industry and only some succeed."

And since there are tens of thousands of Web sites peddling goods and services of some type, not everyone is guaranteed success. What has drawn attention to the springtime shakeout, says Gerrity, himself an entrepreneur, is that "the Internet is arguably the most revolutionary technology in terms of its broad impact on business and society. It causes change and innovation across virtually every industry and business function. So this is a new thing, but this is also a very old thing. [Economist] Joseph Schumpeter wrote about the process of creative destruction, one of the wonderful aspects of capitalism."

Like Gerrity, Stephen J. Andriole, senior vice president and chief technology officer at Safeguard Scientifics, the Wayne, Pa. incubator of technology companies, is not convinced that "shakeout" best describes what has been happening in e-commerce.

"If you step back and take the long view, words like 'shakeout' and 'correction' make it seem like there's a big bang," he says. "Another interpretation, however, is that the invisible hand of sane financial fundamentals has been working all along anyway. In baseball tryouts, everybody gets to show the coach what they've got. There are some good players on the field and some really bad players, and the coach cuts the bad players. What we've had is the first cut."

Andriole says that "people are taking a harder look at business models and trying to determine if they're sustainable over a period of time. If I have a business model and I project a certain amount of revenue, maybe two years ago I was more tolerant of seeing two to three years of losses. Today, people are looking to determine when financial fundamentals enter the picture and they then make valuations accordingly."

Investors are beginning to challenge the revenue projections of dot-coms to see if top-line growth can be achieved "organically" or only through mergers and acquisitions, Andriole says. Executives at Safeguard, a major supporter of the Wharton Business Plan Competition, expect significant M&A activity this year as many companies are unable to meet revenue projections.