San Diego Business Journal

Even the Internet has its folk heroes. With his bow tie and folksy charm, Dr. C. Everett Koop arrived on the scene like Jed Clampett to reap his millions. However, in the same vein as the Emperor's New Clothes, the Street finally asked of his the million-dollar question: "But, where's the revenue?"

They weren't looking for profits, just enough revenue to keep the doors open a few months more. Koop's response: "We have only enough cash to stay afloat through the summer."

So in the wake of the Nasdaq crash of 2000, we ask a similar question: "Did kill the Internet?" or at least the Street's extreme fascination with it. Well, not yet, but combined with a dozen other recent, yet not so celebrated Internet losers, DrKoop may have administered a reality enema.

The inside joke on Wall Street for the past four years has been Internet stocks. The Street and even Ma and Pa investors have made a killing on them to be sure, but the low capital start-up and instant billions in an IPO has puzzled the old school. The Internet business model was so different from anything the Blue Chips would consider valid. It alone gave Internet stocks a bulletproof nature, at least until now.

For the na & #271;ve among us, the process is all too easy. Spend $75 for a catchy domain name and launch a Web site , any Web site. Find an underwriter with stars in their eyes and take the company public, (on the Nasdaq of course). It's a guaranteed success.

Troublesome Worries

As an insider it always troubled me: What happens a year or two down the road, when there is no revenue, no earnings and the senior management team graduates from high school?

One local public firm merely announced that it had launched an unspectacular e-Commerce Web site with undisclosed (pocket change) sales. Their stock ramped up 500 percent in one day with over 1,000 times normal volume. All this for at best a "Me.Too" effort.

When cooler heads prevailed, the stock, which peaked at $5, coasted down to a low of 6 cents. It's almost laughable until you realize that there are still some investors out there, euphemistically referred to as "Longs," who are still holding $5 shares of the stock. Ask your investor relations manager how he or she handles phone calls from those shareholders when they ask why their $10,000 investment is now worth only 120 bucks! Bummer!

So, did (or has) DrKoop killed Internet investment? Not really, probably no more than the real Dr. Koop has affected fashion trends in Southern California. It has, however, served as a wake-up call to the Internet industry and to the Street that Internet business is going to have to start looking more and more like traditional business, than like glorified video arcade endeavors. The immediate evidence of this has been a number of recent IPO prospects that have canceled or curtailed their offerings pending a more favorable market.

Need For More Substance

As I see it, the future of Internet investment will require a lot more substance and financial realism than the hype-based business models that have proliferated so far. There is room in the market for one or two advertising-based search engines, a handful of "portal" sites that derive their revenue from "hits." But, somebody has to eventually derive real revenue from making something and or selling something of substance.

The Street likes to get excited. It gets excited easily, but it rarely lasts for long. The Street wants to be excited, titillated, frenzied and enthused. Boring companies don't grab headlines on Wall Street. Nobody wants to trade a stock that doesn't have a skyrocket in its future. Remember "Buy on rumors, sell on news."

One local non-Internet stock is typical of this kind of stagnation. They have good solid management, consistent earnings and growth, yet they trade only a few thousand shares a day. Let's face it, the Internet is an exciting industry that doesn't make money , yet. This company is making money and can't buy a thrill.

Ahern, a regional analyst and Wall Street consultant, works with firms to develop and implement strategic communication, manage M & As;, and build corporate image.