E-Commerce Reality Time
Stephen King was going to revolutionize the book publishing business by sequentially putting his newest blockbuster directly on the Internet. But his “The Plant” withered after a few chapters because not enough people were reading and even fewer were paying. Like all the deflated e-commerce stocks, whose prices once bore no rational relationship to earnings, King’s venture is a case of high expectations gone bust. There is nothing wrong with the Internet; it will yet prove to be a good medium--for literature and for sales. It’s the unrealistic expectations that have to be scaled back.
Until this spring, the Internet was invincible. Its new economy seemed impervious to the ups and downs of the economic cycle. The old concepts of corporate performance--earnings and profits--were out. Burn rate, the amount of money companies could spend, and the ability to raise new cash were what counted.
Nasdaq, the technology-laden stock exchange, nearly doubled in a five-month period ending in mid-March. Expectations soared. Then, in April, the bubble burst. Nasdaq dropped nearly 50% and is back to where it was in October of last year. In real money, that’s a loss of nearly $3 trillion.
Corporate graveyards started filling with e-commerce companies whose life spans were measured in weeks, not the decades of old-economy companies. They left behind a mass of unhappy investors, stacks of unpaid bills, used computers and some pretty dismal epitaphs. A Times front-page report last Thursday noted that few if any of the major e-commerce companies ever made a dime of profit. But it’s not the epitaph of e-commerce.
Independent analysts expect the successors of the first, failed wave of e-businesses to make plenty of money on the Net once they find the right business model. In the consumer market, that model is likely to include traditional companies with established brand names expanding onto the Net.
It would be just as unrealistic to write off the Internet as a fad as it was to believe that e-companies didn’t need to make a profit.
