The Internet has not only created more millionaires than any phenomenon in history: it has also created more myths, led by one wildly whacky idea - that infinite wealth could be created indefinitely out of nothing (or less than nothing). That touching belief has been totally exploded by the collapse in dot.com values, a crash only less stupendous than the previous boom.
The proprietors of e-retailer Jungle.com, for example, thought only a few months ago that their baby might be worth a deliriously happy £700 million. In real life, GUS has just bought Jungle for £37 million. Before lamenting too loudly, though, reconsider the facts. That's still a juicy fortune, and not a bad return on a year or two's work - not to mention a money-losing business.
There were always two web worlds. The investor mania for dot.com companies existed in outer space. The growth of internet business, usage and applications, though, was in the real world - where these activities continue to proliferate, live and thrive. The two worlds were connected by money. Dot.com companies could in effect print their own wealth. While that encouraged the formation and flotation of many worthwhile start-ups, it also generated a tidal wave of hype.
Even so, the internet (while of epochal importance) is only the tip of the high-tech iceberg. A vast and growing army of specialists supports the websites and earns large and luscious profits. Of the ten fastest growing US companies listed by Fortune in September, three are deeply involved in cyberspace. Thus, Network Appliance sells one web storage filer weekly to Yahoo alone (sales $579 million, net income $73.8 million, annual sales growth 80%). Even bigger is I2 Technologies, which manages supply chains for trading on the net ($750.5 million, $58.4 million, 71%).
Another star is Diamond Tech Partners ($136.2 million, $16.2 million, 50%), which helps develop and equip e-strategies for massive firms. That included setting up Covinst, the gigantic exchange over which America's Big Three carmakers are to buy components and other supplies. Such exchanges represent a whole new fleet of e-bandwagons. Europe's giant retailers are even split between rivals: World-Wide Retail Exchange (backed by the mighty Wal-Mart and Tesco) and GlobalNetExchange (Sears, Carrefour, Sainsbury, etc).
The profits from such giant e-ventures may never be visible, because they consist primarily of savings. By the same token, the value of Easyjet's now dominant e-booking is hidden. It lies in lower costs, in the creation of an improved business model, in which the customers obligingly do much of the clerical work. That helps in achieving the airline's prime aim, which is to achieve enough volume at high enough prices to earn a nourishing margin over costs. This is a simple, universal economic formula which clever e-entrepreneurs (and their even smarter financiers) have stupidly ignored.
In cold truth, many e-entrepreneurs earned their multi-millions, not from the businesses, but the financing. That proved a double-disaster. Many failed to discover, let alone exploit, viable income streams. Many (probably the same many) let the financing dollars and/or pounds go to their heads. They behaved and spent like splendid, established companies when they were merely hopeful start-ups with unproven business models, who often had little idea of how to make people pay for their services at all - let alone handsomely.
The consequent travails have created yet another myth - this time, that real-life, big, established companies, once they have mastered e-commerce (with the aid of specialists like Diamond Tech), will dominate the new world like the old. Consultants E-Insight thus forecast that by 2008 Tesco alone will be generating some $500 million, a third of world-wide net profits, from cyberspace. That will be its reward for enduring £400 million of losses and investment in the next five years, but will leave any retail food upstarts sprawling in its wake.
In so fast-changing a market, forecasts eight years out are exceedingly chancy: also, much of the giants' e-commerce traffic will be cannibalised from exiting stores. But giants do have the apparent advantage of established brands and abundant funds. The advantages, though, are only as good as their exploitation. Overwhelming evidence shows that new boys, untrammelled by mental and physical bricks and mortar, are far superior to oldsters at developing new markets - with ingenuity and inspiration compensating for lack of experience, customers and wealth.
The earlier gross abundance of e-finance was thus a curse in disguise for the web millionaires. They behaved like fat cats when the true economic necessities called for the conduct of starving moggies. The best will return to Square One, re-design business models to achieve genuinely sustainable revenue streams and reduce costs to match revenues. Many will sell out to the establishment either after or before economic breakthrough (see Jungle.com, above). But as subsidiaries, too, success will depend on basic economics.
That isn't all. The obviously correct course for established purchasers is to cherish the independent talents of an entrepreneurial acquisition, and to make it the nucleus of new and distinctive growth. The typical behaviour, however, is to absorb the buy into the mainstream business and crush it to death. Young entrepreneurs, especially when fortified with millions, won't wait around to be crushed. They will be off and running to the next new (and possibly brilliant) thing.
That is another reality of the web. Because newcomers can achieve world-wide distribution at the click of a mouse, and because so much of their infrastructure can be outsourced so readily, they can move into action at potentially devastating speed. In no other age have the opportunities and the chances of entrepreneurs been so rich and abundant. Even those whose outlets are mundane can (like Easyjet) exploit the web to enhance their prospects. The e-stock boom is no doubt over. But in the real e-world, you ain't seen nothing yet.
read all 70 gurus with one feed read all Read all media
