Thoughts from 1998
Back in 1998 I wrote a few "articlettes" similar in length to those I'm doing for my blog now. They were each put as a page on my website, which at the time was promoting my skills around web-design and Internet technologies. I was refreshing a bit of content on my site over the weekend and spotted one of them from around March '98 on my predictions about the .COM boom. I thought it might be worth posting up here for interest, so here it is, unedited in any way other than to tidy up a couple of typos:
One of the most important, yet overlooked, facts about business on the Internet is that there is no new money. There is only ever a finite amount of money and a finite amount of consumer purchasing. The key issue is this - for every pound/dollar that is spent on the Web, one will be lost from traditional bricks-and-mortar companies. This is where the problem exists - it is very difficult to prise a loyal, existing customer base away from an established company to a start-up without a decent incentive. The main incentive that Internet based companies try to offer is price due to lower overheads. However, this is easier said than done, because the start-ups don't have the economies of scale that large, existing companies have.
The second problem is that existing companies will quickly notice if they are losing market share to start-ups - they will create e-commerce sites themselves. These sites may well be able to offer lower prices due to the volumes they are purchasing in. Having said this, there will be successful businesses on the Web - Amazon for example should, eventually, become a profitable company because they appear to have the whole package: Good service, large product range, good prices, and a good reputation.
On the other hand, many high-profile companies will probably not succeed. A great example of this is LastMinute.com - they only exist to offload under-subscribed holidays, etc. onto the public. Once the airline and tour operators realise that there is profit here, they will incorporate such deals into their own online booking systems (which most of them are currently working on). LastMinute will find itself competing with its own suppliers for business - with the disadvantage that they have to add mark-up to make a profit.
For these reasons, the glut of Venture Capital that is being thrown at .COM ideas is sooner or later going to stop - these new-economy companies don't make a profit then ideas will stop being funded. Valuing these companies at greater than the standard 10x earnings is acceptable if it can be shown that they have a viable business model. The majority of these companies don't as they are not making profit even when there is little competition. Once the big-guns get their new-media storefronts set up, and the world realises it isn't as rich and wise as it thought, the bottom will fall out of the new economy. This may take 2 or 3 years, but it will happen. I don't know about anyone else, but I certainly won't have my money invested in half-baked ideas when this happens!
In case you were wondering, that text has actually been live on my site ever since it was first written. Looking back, my only wish is that I'd had more money in .COM ideas up until just before it did all go bang a couple of years later...