There is a perception in some quarters, generated and fed by the jittery souls among us, that e-commerce is in its death throes, or at the very least, is not what it was cracked up to be.
Look at venture funding, those anxious observers say. It has dried up like summer in the Sahara. Two-thirds of dot-com startups will fall by the wayside. There is no relief in sight for high-tech worker shortages. Internet taxation is on the horizon. Layoffs, credit card fraud, global viruses, high turnover and sloppy customer relations are reaching plague proportions. And half of the top Internet companies aren’t even turning a profit!
The Shakedown Strikes at Home
A friend of mine who normally calls only to hit me up for a loan surprised me the other day by saying he had some money to invest. Then he asked for advice, which is a first.
I recovered enough to give him two pearls of wisdom. Number one: Don’t listen to a word I say. Number two: Go high-tech, for the long haul.
He surprised me for the final time by saying, in effect, that no way would he go high-tech. “Isn’t that a burn-out?” he cried. “What about all those companies that are folding? Thanks, but no thanks.” He wanted something solid. He wanted a sure thing. He was unable to overcome the jitters.
Survival of the Fittest
It is undeniable that e-commerce has not yet arrived. But the New Economy is like a red-hot flame. Molecules are jumping around in a frenzy, like grease in a skillet. When the flame inevitably begins to cool, everything begins to simmer down and the smart molecules start to bond with each other.
Or, try this analogy: The New Economy is like a boxing tournament where everyone takes a beating and only the strongest, fastest and smartest survive. E-commerce today seems like an unformed mass of frenzied innovation and experimentation, success and failure. Leaders and followers, contenders and pretenders are scrapping for supremacy in a futuristic, Darwinist free-for-all. But it seems to be working.
Less Vulnerable to Rate Hikes
New figures from the government support the contention that the New Economy is doing something right. Of the 5.2 percent annual growth rate of U.S. gross domestic product (GDP) in the first quarter, analysts say about half was due to investment in information processing equipment and software, although those technologies accounted for only about 7.5 percent of total output.
The growth of the broader economy has slowed — probably due to the Federal Reserve’s interest rate hikes — but the high-tech sector has made up for it. The New Economy, analysts say, doesn’t panic every time the Fed raises interest rates because returns on investments are high enough to offset the rising price of capital.
Federal Reserve Chairman Alan Greenspan pointed out to the U.S. Congress late last month that sectors sensitive to rate hikes, such as housing and consumer spending, appear to be slowing. Manufacturing, too, has stagnated.
Not so with high-tech. It’s booming. A study by Harris Interactive this week said U.S. online spending leapt 17 percent in the second quarter, surging to $8.2 billion (US$) from $7 billion in the first quarter. And, of course, business-to-business e-commerce continues to grow by leaps and bounds, with companies and countries jumping on the Internet bandwagon like it’s the Gold Rush of ’49 all over again.
Merrill Lynch predicted that by 2009, up to 85 percent of all business transactions will be conducted on the Internet.
It is true that Internet penetration has slowed in the United States, but it is expected that more than half the population will be wired by the end of the year, from the current 40 percent. By 2004, that figure will reach 70 percent, according to Forrester Research.
Merrill Lynch is predicting that 1.9 billion people around the globe will be online by 2009. That’s a wired planet.
The New Economy will need to find a balance between massive consolidation and monopoly abuse in the coming years. You need to be big in this new order, and the mergers, acquisitions and buyouts are coming at a fast and furious pace.
Consider some recent headlines: Japan telecommunications giant NTT buys U.S. hosting site, Verio. The online unit of Spain’s Telefonica bids $12.5 billion for Lycos. German giant Deutsche Telekom pays more than $50 billion (you think maybe they miscalculated the exchange rate?) for VoiceStream Wireless.
Analysts say more Microsofts are on the way, maybe hidden among all those startups. E-commerce is not in trouble — it is merely in flux. My one-time investor pal is missing the best bet of his life.