The End of the Net Honeymoon INITIAL PUBLIC OFFERINGS
By Adam Lashinsky

(FORTUNE Magazine) – New presidents who win by landslides and newlyweds without jobs to go back to are allowed long honeymoons. And at least since the dawn of the World Wide Web as a commercial event (circa 1994), early-to-market Internet companies have been accorded long honeymoons too. That's about to end. As the Net industry matures, the grace period from the Neato-Let's-Invest stage to the What-Have-You-Done-for-Me-Lately stage is getting shorter.

This realization, creeping into the consciousness of players in the Net world, is something of a wake-up call. For Netrepreneurs, a shorter honeymoon means less time to assume the competition won't get wise to a new business model. For investors, it means that betting on what looks like the clear leader in a business may not prove to be a successful strategy.

Think back to when Amazon.com launched its online bookstore in July 1995. Barnes & Noble essentially scoffed and didn't really put up credible competition until this year, when it launched its publicly traded online unit, barnesandnoble.com. But in the meantime, the Seattle retailer accumulated 10.7 million customers and increased its stock price 74-fold from its split-adjusted initial public offering price of $1.50 in May 1997, before peaking at $110.63 in April of this year.

Now look at 1999. Drugstore.com, the Seattle-based pharmaceuticals and beauty-aid retailer backed by Amazon and Kleiner Perkins Caufield & Byers, activates its store in February, sells an equity stake to (and cuts a "clicks and mortar" deal with) troubled but established chain store Rite Aid in June and goes public in July. Sounds good, right? First-mover advantage, impressive investors. The whole mortar and pestle.

Not so fast. Online competitor Soma.com sells out to CVS in June. Silicon Valley's PlanetRx lights up its site in March and currently is awaiting a public offering. And a host of Web rivals, including More.com, YourPharmacy.com, and discounter DrugEmporium.com, are all waiting in the wings. Each has a functioning Website and deep-pocketed financiers, and presumably is headed for an IPO.

What's an investor--let alone an entrepreneur--to do? "I try to spend most of my time looking at a first-place company with a defensible position," says Keith Benjamin, Net-stock analyst for BancBoston Robertson Stephens in San Francisco. Easier said than done. Drugstore.com may have gone public first--and it can count on its relationship with Amazon for support. But the others are all aggressively marketing their sites and working with top-drawer distributors to peddle their products. Add the fact that savvy drug retailing giant Walgreen is building its e-commerce apparatus in the same year the others are getting going. Bottom line: a relatively short honeymoon for the new drugstore kids on the block.

It's not uncommon in Silicon Valley for several major venture-backed enterprises to spring up seemingly at once with surprisingly similar business plans. Yahoo, Excite (now Excite@Home), Infoseek, and Lycos all appeared around the same time. But those businesses were competing for what was essentially a new market. The current generation of e-commerce concerns--business-to-consumer as well as business-to-business--are competing head-on simultaneously with one another and old-world incumbents for the Net market. "You'd really have to be a fool to think it won't happen to you," says former Netscape executive Cameron Lewis, now vice president of business development and Internet marketing for MedicaLogic, a Hillsboro, Ore., company that's converting its medical-billing software package into an online service.

Online drugs are just one segment in which there's no time to breathe and where evaluating the winner will be tricky. Investing in auction companies? eBay was a safe bet until Yahoo, Amazon.com, Dell, and others got into the act. Playing the banking angle? Telebanc (being acquired by E*Trade) and Netbank.com might have been left alone a year or two ago, but not now that Bank One's Wingspan is willing to cannibalize its parent's operations while fighting the startups.

Success begets wannabes. And wannabes create confusion for investors. So if you're thinking about investing in the next hot 'n' wired IPO, think first about just how long the company can remain a world beater in an increasingly crowded Internet world.

ADAM LASHINSKY is the Silicon Valley columnist for TheStreet.com. You can browse his Wired Investor columns at www.fortune.com/investor/wired or e-mail him at alashinsky@thestreet.com.