Ireland's dotcom bust has provided many would-be entrepreneurs with cautionary tales of gung-ho investment in online ventures. But the current gloom is not stopping some Internet companies from launching in the midst of the industry shakeout - a time when many former "darlings" of this once-lucrative world are limping, injured and bruised, from their painfully-brief foray into the fickle, sometimes brutal world of e-commerce.
There are about 850 technology companies in Ireland, of which 700 are home-grown, according to the National Software Directorate. High-tech revenues were on the up until the ill-wind of America's economic slowdown began to bite earlier this year. Private equity investment exceeded $750 million in 1999 and 2000. But, according to business incubator HotOrigin, most young Irish software companies are unprofitable.
So why are some Internet entrepreneurs deciding to set sail now? Do they know something we don't? Ciaran McCourt (38), who launched eDiets - www.eDietsuk.co.uk - in the UK in April, is buoyed by the fact that his American joint venture partner, www.eDiets.com, posted profits for the last four quarters, while many other e-commerce ventures are going under, downsizing their operations and/or shedding staff. His Dublin-based site aims to give paid-up members regular, confidential and, crucially, personalised diet and exercise advice.
This family business developed from traditional familiar bricks-and-mortar beginnings. McCourt's father, Brian, set up Ireland's early gyms in Newry three decades ago. When the Troubles started, the family started Unislim, taking their healthy living message countrywide.
So, as the McCourts have been "slimming the women of Ireland for 30 years!", he decided to make his move online sooner rather than later.
"If I had done this without eDiets in the US, I would have been (a) competing against eDiets, which has proven its mettle with 275,000 paying members and 6.5 million subscribers in the US, and (b) be out of business by now," McCourt says. "This is one of the most successful subscriber business models online. My ambition was to create a new business without threatening the traditional business. This was also our chance to tackle the UK market."
Although eDiets and Unislim are separate companies, they fall under the same stable, allowing McCourt to "shore-up" Unislim against any future competitive threats. eDiets, which will soon launch an Irish version in conjunction with Unislim (www.eDiets.ie), recommends a nutritious grocery list based on the customer's favourite supermarket. In Ireland, he says the Internet service will offer value-added privacy and convenience for both Unislim customers and the new e-dieters.
"In the gym or at a class, you might be the only person who has to lose four stone," he says. "But online you can anonymously join the support groups, swapping tips with others in a similar situation."
But McCourt discovered first-hand that the climate for Internet companies has changed. The IDA rejected his request for funding. But it didn't stop there. "We knocked on every venture capitalist's door in the country and got no takers. That was back in mid-2000, so they were getting scared and retrenching even then. Although we used the US model for eDiets, we set up our site on a shoestring." The company has two full-time staff, two part-time and two temporary.
By co-operating with eDiets.com, McCourt used the economies of scale of his US partner to drive better marketing deals in the UK, which "will be key to our survival" he stressed. And after a few short months, he has just signed a major marketing contract with Yahoo! UK on mutually beneficial terms, he says, that would not have been possible without the US arm.
On a slightly smaller scale, one-man-show Ed Field (32) launched www.photosframed.com in June, when many high-profile Internet companies were going under. But Field, who has a background in telecommunications and IT, believes a lot of Internet mania forced some bricks-and-mortar companies online when they should have spend £50 on a one-page website advertising their wares. His company, on the other hand, wouldn't work any other way.
Photosframed.com invites customers to upload digital images and have them sent to relatives or friends for about £25 in the UK or £29 in Continental Europe. Anyone in the world can upload pictures on to the site for delivery in Europe, says Field.. "If you're travelling around Australia and you do a bungy jump, you can upload it and have it delivered to your family or friends within three days."
Field is cashing in on the still-popular ex-pat market. "There's a huge lack of understanding of this medium," he says, "and there are a lot of basic mistakes still being made. People trying to fit square pegs into round holes. This medium doesn't suit every business. The fact that a company is or isn't a dotcom won't bother people in the next few years. You'll be just another business and the same rules apply."
When Field told some friends he was setting up his online photo-framing business, they said he must be "mad". But he has put his faith in the growth of digital cameras over the next five years.Plus, he is betting on a resurgence in consumer confidence and, ultimately, the continued increase in the number of online customers.
As with eDiets, which showed that US and European online companies do well to co-operate, Field hopes to work, or "co-brand", with his US peer, www.eframes.com, although they will remain separate operations. He hopes the US site will refer customers to Photosframed.com, while he will advertise the US site for those wishing to send framed photos to the US.
"I've set this up from my own funds, one small investor, and a small grant from Enterprise Ireland and Dublin City Enterprise," Field says. "A lot of other Internet ventures spent a lot of money on shot-gun type marketing.You have to be very targeted and careful with your marketing. You'll find that the successful dotcoms are marketing in a clever way."
While eframes.com spent around $1.8 million developing and launching its site before the dotcom shakeout, Field spent "significantly less" on his model. He also carefully targeted his marketing and advertising to ex-pat websites and distributed fliers advertising his site at DART stations. This, he says, is a far cry from those Internet companies that spent millions advertising their site on TV during the US Superbowl.
During these challenging times, you can also get things done faster and cheaper.
There are actually many advantages to launching a dotcom during the industry's reversal of fortune. Firstly, Field says he could ask "unemployed friends" to help him out. (Technically, they're between engagements.) Secondly, website designers and developers are easier to find and more willing to take on a job for a more reasonable price. Instead of using an expensive, high-flying agency, he employed freelancers.
Meanwhile, McCourt, enlivened by his Yahoo! marketing deal, remains optimistic even though the economies of scale in Ireland and the UK are obviously far smaller than the US. Although his initial investment has been considerable, the next few months will probably be make-or-wait rather than make-or-break.
"We're hanging in there," he says. "We already have revenue coming in. The family business has been around for 30 years. I want our online venture to be around 30 years, too."