FW: The Net Isn't Doomed

From: kragen@pobox.com
Date: Wed Feb 14 2001 - 22:31:31 PST

Said someone:
"Would you mind posting this to FoRK for me?"

And so I am.

-----Original Message-----
From: Barely Managing at eCompany.com
Sent: Wednesday, February 14, 2001 1:51 AM
Subject: The Net Isn't Doomed

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Barely Managing

The Net Isn't Doomed

By Thomas Stewart for http://www.ecompany.com

Dotcom schadenfreude has become as tiresome and unenlightening as
e-business braggadocio was a year ago. Sunday's New York Times held
two separate pieces -- one in the business section and another in the
magazine -- about behavioral economists, a perfectly sensible group of
people who struggled for an inexplicably long time to be taken
seriously by an economic orthodoxy that believed people behave
according to the (economists') dictates of rationality.

The reason for the Times's double whammy, though, was that irrational
behavior on the part of stock buyers can explain the dotcom
bubble. One of the writers said, "If the behaviorists are correct,
shares of companies on the New York Stock Exchange are [still]
overvalued." That's a non sequitur, of course: The fact that the
market was overvalued does not prove that it still is. Quite
possibly, in fact, those who were irrationally exuberant are now
irrationally gloomy; or maybe they got their Librium dosage just
right. Or maybe the market was overvalued not because of irrationality
but because of misleading financial statements based on obsolete
accounting standards. The point is -- and even the most exuberant
economic behaviorist must concede this -- the Times doesn't know. Alan
Greenspan doesn't know. Warren Buffett doesn't know. The economists,
behavioral or neoclassical, don't know. I know, but I'm not
telling. (If you write me in April, however, I will be happy to tell
you what I knew in mid-February about the future direction of the

I also know this: The cataclysms that in the last 12 months have
eroded the value of so many Internet companies, washed out so many
others, and will sweep away others as yet unknown and unsuspecting
don't change the size of the opportunity. In 1999, Purchasing Magazine
reported that 38 percent of business buyers already used the Web for
at least a portion of their transactions. In 2000, businesses buying
from one another channeled some $336 billion through the Internet,
according to research group Jupiter Media Metrix. By 2005, the same
group estimates, Internet business-to-business sales will add up to
$6.3 trillion -- 42 percent of the total. Forrester Research estimates
that the global business-to-business electronic market will be worth
$7 trillion by 2004. Even if both estimates are too high by half, B2B
means big-to-bigger.

Same goes for B2C, the business-to-consumer market, though we'd have
to say it means big-to-colossal. Forrester says this market will be
worth $184 billion a year by 2004. That's just 7 percent of total
retail sales, but (a) 7 percent is a lot and (b) it's highly
concentrated. E-commerce sales of groceries probably won't amount to a
hill of beans -- Weban CEO George Shaheen will, in retrospect,
probably wish he'd stayed in consulting -- but a seismic-shifting 25
percent of music will be sold online, as will 13 percent of flowers,
two out of five computers, half of all software, 12 percent of leisure
travel, and 11 percent of apparel -- that's one out of every nine
items in your closet.

Long after office-wide foosball tournaments, denim shirts with logos,
and free Coke machines have become campy nostalgia items, there will
be major businesses making plenty of money through e-commerce. Sure,
no one has figured out a way to turn the online distribution of music
into a moneymaking machine, but does anyone seriously think it's a
good idea to invest a lot of money on leases and shelf fixtures for
retail shops that sell CDs? At a dinner party the other night, my
hostess -- a woman in her 60s who owns several Picassos, a Kandinsky,
a Mondrian, and a fabulous collection of Renaissance paintings -- told
me how much she loves eBay. She won't go there for art, which she buys
only if she can see up close, but she swears that there's no better
way in the world to buy china -- she has bought several sets, for
herself and her children. Besides, she thinks it's a lot of fun.

Many years ago -- about the time the Web was a gleam in Tim Berners
Lee's eye -- I interviewed Paul O'Neill, now secretary of commerce,
then the new CEO of Alcoa. The company and industry were in disfavor;
O'Neill's predecessor's strategy had been to diversify to reduce
Alcoa's dependence on the doggy aluminum business -- maybe to get out
altogether in the fullness of time. O'Neill, reversing that, said
something smart, maybe even wise: As long as the world needs aluminum,
the markets will see to it that there's enough of a return to attract
the capital the industry needs; therefore, whatever the industry's
cyclical ups and downs, if ours can be the best of the aluminum
companies, our shareholders will do very well. It does, there was, it
is, and they have.

The same goes for e-business. Yes, there's a paucity of proven
business models (i.e., ways to make money); yes, there's a plethora of
ideas that should have looked as stupid in foresight as they do in
hindsight; yes, there's more nincompoopery yet to be revealed. But
the world wants the Web, and both businesses and consumers want
e-commerce, so the capital markets will find a way to reward good
companies. In September 1999, the Cutter Consortium, an IT research
group, released a survey that showed that 65 percent of companies had
no e-commerce strategy -- a remarkably high number considering that
the survey was conducted entirely over the Internet. Half of the
respondents said they advertised on the Net, and 38 percent said they
used it to deliver some sort of product. The obvious conclusion, which
perhaps we didn't need a survey to learn: A substantial number of
companies have been doing business online without the foggiest idea of
what they are up to.

The moral of the story: Don't give up the ship just because the first
several people who sailed for the New World ended up in Mozambique.

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