Internet stocks , the “dot-coms” of the so-called New Economy , are being described as the spoilers of the Old Economy, the brick-and-mortar standards that have survived for decades on such old-fashioned concepts as products and profits.
While Internet IPOs have been propelling technology stocks into outrageous orbits, the Old Economy stocks have taken giant strides backwards. That’s only spurred on the shark-like feeding frenzy that has been driving the new markets and convincing more investors the future of commerce is in click-and-orders instead of brick-and-mortars.
But are the investment opportunities presented by virtual companies little more than virtual opportunities themselves? And should the New Economy be renamed the Virtual Economy?
The current rush on Internet stock recalls similar frenzies throughout history, from the California and Alaska Gold Rushes to the post-war Uranium Rush. Just like today’s Internet Rush, a few got rich, but most got poorer.
In fact there is little new about the New Economy. Don’t get me wrong; I love the Internet; I’ve been going online since the days of computer bulletin boards, when the Internet was still a plaything of academe and the U.S. military.
And I admit it, I’ve purchased a number of goods by wire. But unlike so many others, I failed to get a sense I was taking part in some historic economic adventure , that I was, to paraphrase Capt. Kirk, “Going where no consumer has gone before.”
Actually, it was rather old hat.
Let’s face it, consumer dot-coms , business-to-consumer sites, or B2Cs as they’re called , are really little more than the descendants of the Sears mail-order catalog.
For more than 100 years, the Sears catalog and its imitators have utilized the latest communications technology to sell their products. Even before he created his famous catalog, Richard Warren Sears offered his first wares , pocket watches , by telegraph. Then came phone ordering and, later, fax ordering. The only thing new about B2Cs is point-and-click ordering.
There’s been suspicion much of the Internet Rush has been led by investors with little experience in or understanding of the ‘Net, people who might think “hyperlink” has something to do with the warp drive on the starship Enterprise.
One also suspects these investors have an equal knowledge of investing. In the New Economy, products and profits seem to have little meaning to dot-coms or investors. Few dot-coms have either. Most have been living on capital investment and little else.
A recent review by Zack’s Investment Research of the earnings per share of 50 dot-coms showed only three with positive numbers. While the recent stumbling of stalwarts stocks like Procter & Gamble Co. have raised murmurs of the decline of the Old Economy, little has been said of the fact most Internet stocks have been nose-diving for months.
Instead of profits, dot-coms have been luring investors with “revenues.” But now the Securities and Exchange Commission is beginning to take a close look at how Internet firms calculate those revenues.
Some, for instance, count as revenues the entire sales price a customer pays to their site for a product, even though most of that price goes straight to the brick-and-mortar company that produced it. Others count barter revenue , what we in publishing call trade credit , as real dollars when, in fact, it has no real value.
Needless to say the SEC’s review has many dot-com executives shaking in their jeans and loafers.
Does all this mean E-commerce is a passing fad? No. E-commerce is here to stay. After all the shaking out, there will be some winners and far more losers, but E-commerce will remain, taking its position among all the other means of selling products.
Just like the mail-order catalog.
Hill is editor of the San Diego Business Journal.
