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Reprint from March 2001
CYBER SPACED OUT
By Jim Putnam
The
world of dot coms has seen a rather tumultuous start to the 21st millennium as
the after market crashed, reality set in, and options morphed from retirement
funds to wallpaper. Most people believe
it was a situation that was overdue.
There was little foundation to support the high flying stock values in
the market place. Seemingly overnight
60-70% of the value of many of these companies vanished.
What
insidious dark forces were at work in the high flying tech sector to bring such
chaos and devastation to the silver lining?
Well, where do I start? Perhaps
the most obvious can be found in the faces of the new tech Wizards. Often what is not there is more telling than
what is. Their faces seemed too clean,
too unblemished, and too confident.
They
lacked the lines and scars of experience found etched in the faces of the Old World masters, meaning those people in business prior
to 1999. When the Wizards were still in
diapers and cutting teeth, the old masters were setting in motion a sustained
economic growth unparalleled in the history of the US, and the world.
Once
e-mails became the staple of American leisure time, and the pc became the
Source for all that is, then the Wizards declared the old economy to be a dinosaur
and relegated the veterans of American capitalism to be ready for the museums.
That
was how we ended the last millennium.
And now that we are halfway through the new year, we can already see the
results of the wisdom of the Wizards of technology as stock prices collapse,
options evaporate, losses continue to mount and the seemingly endless money pit
goes dry. Yes, the Internet has
certainly speeded up everything, including failure.
Where
did the e-commerce Wizards go wrong? If
blame is to be assigned at all, it should be assigned to those that bought the
hyperbole in the first place. For a
short time all rules of economic logic and reason were suspended. For a short time greed dominated the marketplace.
Look
at what we forgot. Revenues were no
longer important. Profitability
vanished. Multiples were no longer
relevant. Market caps were established
by smoke and mirrors. Executive
experience was no longer considered necessary.
At times being young enough to have zits was an acceptable substitute
for training.
So
what if there was no market for the new product or service, the
"Internet" would fix all that with its vast new market of
consumers. The principle of supply and
demand gave way to the concept of creating demand regardless of need and
supply.
The
same with using traditional media and advertising. The power of the Internet would fix that
too. Conventional broadcast and print
media would soon be obsolete, and certainly weren't needed for the e-commerce
high flyers.
As
for competition, copycats flourished as the new economists determined that the
Internet would create such a massive new consumer market that anything and
everything could be sold. Have faith in
the digital revolution and trust the cyber gods.
In
one form or another capitalism has existed in this country for about 500
years. We fled unfair taxes, traded Manhattan for costume
jewelry, and beat up the English over tax on tea, all before we even had a
country. Now our capitalist system has
been a dominant world force for a couple of hundred years. Yet in the course of 12-18 months the
high-flying Wizards of the new economy were going to change all that and bury
tradition in the ashes of the cyber firestorm.
By
the 4th quarter of 1999 it seemed the cyber gurus might be right as greed and
need sucked the masters of the old economy into the furious world of dot
coms. Suddenly the names attached to the
IPOs read like a guest list to a presidential fundraiser or Board meeting of
the Metropolitan Museum.
Familiar names. The backbone of
the American financial infrastructure.
Well
folks, the fad flopped. Along the way we
discovered the Wizards really didn't know it all. A lot of people got burned, and a lot of
people got hurt. Many compromised their
values for the quick buck. Those rushing
to jump on the e-commerce bandwagon, despite the warnings and suspicions of the
old economy warriors, found the wagon missing when they landed.
Less
than a year after the spectacular ascent of the cyber gods, came the even more
spectacular fall. In the vernacular of
the cyber psychics, the ascension never quite got off the ground. It will take years for the impact to be
realized. Make no mistake, through it
all the cyber revolution has forever changed the American and world
landscape. Even in many positive ways.
So
in the spirit of David Letterman, perhaps we should establish the top ten
misconceptions from the coming out party for the cyber revolution, sort of a
new millennium report card. Clearly
these represent the views of the author and will be far from all-inclusive, but
I would hope many contributions will be added by more informed readers.
Lesson #10:
The
rules of capitalism do not apply to the new economy of the cyber world. Sorry folks, but capitalism is capitalism no
matter what the industry or technology.
The same rules apply to capitalism that always applied to capitalism
whether we are in the industrial age, the service age, or the cyber age. A business still needs a product, revenue,
customers and profits to succeed.
Lesson #9:
In
the cyber world experience is not necessary for success. There is still a need for competent and
experienced management. Having Internet
access to more choices and information and bigger markets does not
automatically result in management knowledge and wisdom. As always, experience is a process of
learning, not declaring.
Lesson #8:
Acceptance
of new technology will happen overnight.
It took 70 years for radio to mature in America. Fifty years for television to take hold. Vinyl records were around for 75 years before
compact discs really replaced them. Even
eight track recorders died a very slow death.
Phones became accepted in the last half-century. Computers have been in development since the
1940's. Cable TV has been in use since
the 1950's. And still not all homes in America have
phones, personal computers or even cable television.
Lesson #7:
Technology
breakthroughs will benefit all related technologies. So as long as the public buys a new
technology, they will buy all new technology.
I don't think so. The market
explosion in video games and high tech gadgets was supposed to mean we are
adapting to the cyber world. Yet Sony
sold 80 million Playstations (a high tech marvel at the time) but only 20% of
the buyers had access to the Internet.
Lesson #6:
The
new economy would render traditional masters of the old economy obsolete. This is a bold and arrogant perspective with
no historical basis. In our system of
capitalism winners and losers are determined by sustained performance,
adaptability, access to resources, and staying power. Often times the traditional economic leaders
let others make mistakes before embracing new concepts. Just watch as retailing giants Wal-Mart,
Target, or J.C. Pennys suddenly become the dominant forces in e-commerce.
Lesson #5:
The
millions and millions of new Internet users represent an entire new market for
consumer goods and services. This might
sound logical but it is based on an unfounded assumption. What in the world do we think these millions
of new users have been doing before the Internet? They still bought everything they needed from
traditional sources. The Internet does
not represent a new market but an opportunity to shift the market share from
traditional consumer sources to cyber sources.
To achieve that, the consumer must be given a reason to change buying
habits. Access to the Internet is not a
reason, just an opportunity.
Lesson #4:
The
Internet will foster unlimited new opportunities in audio and video
broadcasting including interactive communication. Well guess what folks, who in the world will
ever have time to surf 500 video channels, 10,000 audio broadcasts, not to
mention the hundreds of interactive channels for every major retailer and cause
in America? Already the many but still
limited choices on cable television have left the public in a quandary. Interactive tests have failed miserably. Over 5 million websites exist before the real
broadcast benefits of the Internet have been felt.
Lesson #3:
The
Internet itself can provide all the advertising opportunities necessary for the
new economy players. With 80 million
users in the US
one would think this could be true. But
the truth of the matter is the Internet has resulted in market segmentation and
fragmentation on a level never before seen or experienced. What the technology of the Internet has done
is give the consumer the chance to exit or ignore ads like never before. Our click happy culture has discovered the
ability to spend an average of a few seconds looking at a screen before zapping
along. So while we are bombarded by more
cyber driven commercial messages than radio or television ever dared throw in
our face, reach and frequency no longer have an impact.
Lesson #2:
The
Internet technology will render all current forms of communication technology
obsolete. This statement implies that
the Internet, as well as existing communication technology, is good in the
first place, which remains to be proven.
However, whether one surfs the web or works the remote, there is a
furious competition for your attention.
Demographic analysis is more complex than ever. The "knowns" of traditional media
remain much clearer than the "unknowns" of the Internet. Don't look for this to change any time soon.
Lesson #1:
Thanks
to the Internet, the world will never be the same. Instant worldwide communications has indeed
given us the opportunity to be better informed, better educated, and easier
misled than at any other time in our history.
High technology has given us a new way to communicate. But communications without morality and
standards has created a whole new playing field for purveyors of fraud, deceit
and corruption.
I
count this as a misconception, but with positive leanings, for the power of
information and education will, in time, result in a world with more
truth. In a Biblical sense, the Internet
will finally bridge the horrible gaps in communication between people and races
and maybe even religions. Ever since we
were cursed with multiple tongues as a lesson in ancient Babylon, we have been separated by
language. The cyber world is at least
tearing down those barriers.
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