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E-Commerce Bubble in No Trouble

By Keith Regan
Oct 30, 2000 12:00 AM PT

E-commerce means different things to different people, whether it's a household name like Amazon or an obscure business-to-business hub where chemicals are sold.

E-Commerce Bubble in No Trouble

But for everyone, e-commerce should represent a sector with the potential to generate long-term economic growth. The rapid pace of technological change all but ensures that e-commerce in its many forms will continue to attract capital, create jobs and wealth, and sustain the overall economy.

In short, e-commerce is a bubble that can't burst.

Ups and Downs

Former U.S. Treasury Secretary Robert Rubin warned the other day that the new economy still must behave like the old, with peaks and valleys and all that unpleasantness. I respectfully disagree.

This is not a prediction of decades of unbroken hyper-growth. That's not realistic. But what is realistic is a period of time during which the economy never slows down as much as it has in the past.

I base this idea not on a Ph.D-level understanding of macroeconomics, and I do not presume to challenge Rubin's understanding of the topic. Instead, I'm basing my argument on good old-fashioned intuition.

Who Me Worry?

First, there are the dot-com layoffs. Yes, there are plenty of them, and they are accelerating like mad. Challenger, Gray and Christmas summarizes the bad news for us every month now, and rarely does a day pass when some dot-com layoffs aren't in the news.

But guess what? Those layoffs have yet to make a blip on the radar screen of the unemployment figures.

Why not? First, of course, there's scale. A loss of 5,000 jobs a month seems big to e-commerce insiders, but in the grand scheme, it's not much.

But I think there's more to it. Laid-off dot-com employees don't mope their way over to the unemployment office, and if they do, they probably have a job offer in hand before they get to the front of the line.

That's because for every layoff there is a startup somewhere looking to double its headcount. And that in turn is because venture capitalists are funding startups looking to be part of the next wave of Internet and e-commerce evolution. That money in turn comes from major corporations and pension funds and the like, institutions that know how to get a big return on their investments.

Moving Forward

On the most basic level, the Internet itself will provide a steady river-flow of capital, jobs and spending. The move to broadband is really a race, with telephone companies and cable giants competing to roll out networks alongside fiber optic startups. These are companies that take $100 million (US$) in first-round venture capital and chew through it before lunch.

Then there's the wireless network, both the one we know today and the faster ones we should know before long. Those infrastructures will require new applications, adaptations, hardware and software. Every day a startup with its sights on the future aims to fill those needs before they even arise.

Yes, Rubin is right when he says that capital is being doled out more rationally now, with profits being expected in return. But warnings of a landing, hard or soft, seem to ignore the fact that in many ways we have a new culture on our hands.

Getting Back on the Horse

That culture is all about confidence. A friend of mine thought for sure that the stock of wireless products and services company Qualcomm was the answer to his dreams of wealth. He spent night after night on stock chat boards, pored over financial reports and invested every penny he could find. In a few months' time, he was up more than a million dollars -- the stock rose from $20 to $200 and split three times.

And then he lost almost all of it when the bottom dropped out of the Nasdaq. He was a millionaire for about three months -- he never got to enjoy it, really. But the important point is his reaction: He regrouped and is about to try again, confident not only in his own ability to pick stock but in the ability of young companies to grow.

That same confidence is on the employment side, too. Not long ago, a resume bearing four employers in a year's time would be a red flag. No more. Today, three months at a consulting firm, four at one dot-com and two at another is seen as valuable experience weathering the volatility of the new economy.

Rubin is right that there are always dips and rises. But crash landings are a different story. The belief that we are moving in the right direction, even though there may be bumps both large and small in the road, will keep this bubble from bursting any time soon.


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