In his recent column (Prophets of Gloom Wrong About Net Stocks, Jan. 30), Don Tapscott argues passionately that anyone who dares discount the potential of the current round of Internet stock plays is doing himself a disservice. He seems offended that there are people who indicate things are out of hand when a company that has $7-million in sales is valued at $2.5-billion.
I think Mr. Tapscott does himself a disservice by getting too carried away with the current hype of the Internet. As someone who has written 30 books related to the Internet, and who has been dealing with the online world since the mid-’80s, I am convinced it is the most significant technology to hit us in the past 500 years. Its impact will be dramatic — Mr. Tapscott and I share this view. Yet I disagree with his belief that Amazon.com and some of the other Internet plays represent real investments with real potential.
Why? The problem is that most of these current Internet plays reduce the network to some giant online shopping mega-mall, with people hanging out in chat rooms when they aren’t busy trading Beanie-Babies in an auction house. Most of the companies that sport the outrageous stock prices are like candy-floss shacks at a carnival, their flashing neon lights screaming “Buy! Buy! Buy!” and “Visit Madame Zelda!”
The carnival atmosphere that surrounds this current round of overhyped Internet stocks has two negative effects. It causes many investors to put their money in the wrong type of Internet play, with the result that many people will soon be burned when stocks collapse in spectacular fashion. Even worse, it causes business executives to lose sight of the real business potential of the Internet, discount its importance, or — horrors — think that doing business on the Internet is easy and straightforward.
Most of these high-flying Internet stocks tend to focus on consumer-driven activities, and their business is often based on the premise that most people are set to give up on the local shopping mall in favour of some type of online cyber-shopping experience.
I remain a huge skeptic on the overall potential of online shopping, as I have been ever since the days of Telidon. We all know that books, CDs, and certain other products sell online, but I doubt the majority of the human population is set to go out on the Internet next week to buy a jar of horseradish or a snow shovel. If you asked me today to invest in either Amazon.com or a company building real shopping malls in the real world, I would choose the latter.
Yes, everyone should consider some type of Internet investment for his portfolio. But they should stick to the companies that are building the bricks and mortar of the 21st-century economy, rather than those putting together these flimsy tar-paper shacks that are bound to collapse at the first gust of wind.
The real potential of the Internet is far different. It is in the design and implementation of business-to-business transaction networks. Companies involved in building real Internet applications are those involved in completely re-engineering the way transactions flow between corporations. That is what e-commerce is really all about.
Case in point: Estimates indicate that some $2-billion could be saved by changing the paper-based mortgage processing system in the U.S. to one based on Internet technology. There are tremendous cost savings in moving away from a system in which paper documents are processed and handled by 100 people for a simple mortgage. E-commerce companies recognize the potential revenue in implementing technology that allows documents and transactions to flow effortlessly and electronically between real estate brokers, mortgage companies, financial institutions, government bodies and others.
Numbers such as these have caused Bell Emergis to position itself as an e-commerce specialist within the mortgage industry. The revenue potential in this type of activity means that e-commerce companies such as Emergis, technology companies such as IBM, and many small startups are doing far more to create the Internet economy than Amazon.com will ever do. They are busy implementing technology that links together the financial, purchasing, inventory management, order entry and other transaction systems of the business world, and facilitates the move from a paper-based economy to an Internet economy.
Mr. Tapscott argues that the Internet is a long-term play, and that much is true. These organizations will tell you that implementing technology that fundamentally changes the way a company does business is not easily accomplished in the short term – but it has significant revenue potential in the long term.
That is real money. Honest money. Fundamental money. Not dishonest candy-floss money.
I feel embarrassed for the Internet, with all this talk of Amazon.com, eBay and other “hot” plays. Sadly, the network has been invaded by the opportunistic element of the investment community. I could put out an IPO next week for a company that sold purple garbage cans online, and it would probably sell. A lot of people would get ripped off, lose money, and then scream blue murder when the market collapses.
But if the money isn’t honest, who really cares?
People use long distance phone cards to contact together with their loved ones, colleagues and friends, in the most inexpensive method achievable.
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