Yahoo!'s profit warning has raised fresh questions not only about the future of dot.com companies but of the culture of the world wide web itself. Yahoo!'s shares fell sharply in after-hours dealing on Wednesday when the company warned of a significant deterioration in its prospects for this year. Yesterday its shares were trading at $25, a fall of 88% since their peak last year.
Yahoo!'s deteriorating prospects is unsurprising in the wake of the sharp downturn in the US economy as a whole and the catastrophic crash in the dot.com area which has made some of the financial pages look more like an obituary section. But that will not stop the questions being asked. If Yahoo!, the most successful of all the web portals, cannot be turned into a prosperous business, what chance is there for the other dot.coms, most of whom, unlike Yahoo!, lose money on an unbelievable scale?
One of this week's casualties, Mercata, turned out to be losing $36.1m (£24m) on sales of only $6.3m. Mercata, like its troubled European equivalent, Letsbuyit.com, had the novel idea of grouping consumers together to negotiate lower prices. This is a wonderful way of harnessing the global power of the internet - in theory. In practice these companies underestimated the cost of marketing, delivery and servicing customers.
If it turns out that hardly any of the new internet companies are able to derive finance from elsewhere (other than banner ads) to finance services like email, web hosting, chat rooms, search engines and all the other services we have been used to getting for nothing, then something will have to give.
There are two reasons why these services are free. It is not that Microsoft and Yahoo! have turned into a web version of the Red Cross. It is, first, because they know that there are so many others offering similar free services that consumers would simply migrate to them as soon as any company started to charge. On the web the consumer is (still) king.
The second reason is that no one has yet devised a successful way of enabling small payments to be made on the web. If that had happened at the beginning (as it did for a while on BT's Prestel service) things might have turned out differently. The next year or two should see a breakthrough in devising acceptable internet payment systems.
What is likely to happen now is that lots more companies will fail and the bigger ones will gobble them up - and one another - in order to gain enough market power to start charging.
This does not mean that the underlying "mutual" ethic of the internet is at risk. People, institutions and many companies will continue to exchange information and services for nothing. And the internet will continue to be a vital conduit for the vast majority of successful businesses.
But it could mean the eventual end of the commercial free lunch. Yahoo! is already trying its luck. It has started charging punters who want to list items on its auction sites.
Some people think the big dot.coms will be rescued by charging for streaming video commercials that web users would be compelled to watch for a few seconds before accessing what they want. There will be a lot of resistance to this. But the lesson of this year is that dot.coms, including Yahoo!, cannot live by banner ads alone. Something has to give.
