Well, what went wrong? It is only 14 months since Britain's internet boom commenced, yet analysts are already chanting its obituary against the descant of high-flying startups hitting the decks.

Companies such as Netimperative, Boo.com and Clickmango ran into trouble despite having established quite well known brand names. For many years Britain's inability to nurture a strong venture capital industry was regarded as a serious structural weakness. Now it seems to have gone from boom to bust in a year.

Or has it? The collapse of funding is really confined to the business-to-consumer (B2C) start-ups. A year ago venture capitalists were giving out-of-college entrepreneurs money even before they could get their backpacks off. Now, persuading a venture capitalist to fund a B2C proposition is like selling an ice cream in the Sahara. It melts into nothing while you are talking.

But this doesn't mean that venture capital is dead. As Vic Morris of Atlas Venture points out, there is still plenty of venture capital around - but the smart money is now going into infrastructure, software and mobile telephony. VCs are still lending to retailing start-ups but just being much more choosy and concentrating on proven management skills rather than bright ideas.

The surprising thing about the fall of the dot.coms is that anyone should be surprised. They are all small companies: and small companies have a very high mortality rate. Half of all new companies fail within five years, according to Dun & Bradstreet. That's just the normal rate of creative destruction that makes capitalism tick. With dot.com companies you would expect the failure rate to be higher because of the youth and inexperience of the main players and the uncertainties of the new world of the internet. The difference is this - if they had been normal small companies, their successes would never have been exposed to the relentless daily spotlight of national publicity.

Consider: Clickmango, with Joanna Lumley as its icon, had a turnover of only £2,000 a week - which scales up to annual sales of £104,000. The local village shop could do better than that.

At first "Old Economy" companies feared they might be swept away by the internet revolution they had been so slow to foresee. Then they realised they had two invaluable assets that the dot.coms had not thought much about. Brand identity and a proven delivery system.

At this point the writing was on the wall for many of the less original start-ups that were merely selling old economy goods in an electronic way. They soon found out that the economic benefits arising from not having to build a national network of shops was offset by other factors. Like the vast amount of money needed first to make the public aware they existed and, second, to deliver the goods in a reliable way.

It is salutary to see that Lastminute.com, the best known of all the UK start-ups which benefited from huge free publicity, spent almost £6m on sales and marketing in the latest quarter. This was almost six times the value of its sales during the same period. This may turn out to be justified once the company has established a strong international presence - but it is not something that other less well endowed start-ups can easily replicate. Interestingly, Lastminute this week spent £59m buying the French travel company Dégriftour which pre-dates the world wide web. A rare case of a new economy company buying an old economy company to bolster its survival chances.

So who gained from the frenetic first year of activity? The answer is everyone. It has been a traumatic wake-up call for commerce and industry. Companies know they must embrace the internet or be devoured by it. From the small corner shops now able to sell their specialist wares on a world market to the huge trillion dollar intranets being constructed by the world's biggest car companies to rationalise component purchases, the message is the same: the internet will transform the way we buy, sell and produce goods and services.

The clear winner has been the consumer who has benefited from the deflationary impact of globalisation and the internet. This has brought remorseless downward pressure on prices because of the global availability of suppliers and the consumer's ability to surf the net for cheaper offerings of the same product.

We have now entered the second stage of the internet revolution - a financial bloodbath which only the fittest will survive. The worst of the new start-ups will simply collapse and never be seen again. Some will struggle on without making any money while others will be snapped up at bargain basement prices by predators who will adapt the assets for new purposes.

Hopefully, the second stage of the revolution, will also generate new business ideas based on the unlimited potential of the internet rather than merely gluing an internet selling solution to an Old Economy business.

Meanwhile, the venture capital money is migrating to business-to-business ideas, to infrastructure building where less competition means there is more money to be made and to the huge, but as yet uncharted, possibilities of commerce through the ubiquitous mobile phone and interactive television. The revolution has barely begun.