NEW YORK — It’s blame-game time.
You may have noticed a slew of articles recently aimed at deconstructing the Nasdaq bubble — all with the benefit of hindsight (more than 3,000 Nasdaq points of it). The same folks who dutifully reported the Internet gurus’ every prognostication, documented every untenable new idea — selling potting soil or pet food on the Internet — have seen the light.
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A recent Sunday New York Times devoted its entire business section, not to mention a front-page article, to the busted technology bubble and the latter-day prophets. All of a sudden the newfangled measures for valuing stocks, known as “metrics” in the trade, are under the microscope. Things like Web site traffic, “engaged shoppers” and “leading mind share” are now exposed for the hokum they always were.
On CNN, Robert Schiller (“Irrational Exuberance”) and James Glassman (“Dow 36,000”) accused each other of being irresponsible (not irrational). Henry Blodget, Merrill Lynch’s wunderkind Internet analyst, was mentioned in 796 news stories in the first quarter of 2001 compared with 297 citations in the first quarter of 2000. Clearly reporters have come to bury Blodget, not to praise him.
Alas, Blodget and Mary Meeker, Morgan Stanley Dean Witter’s “Queen of the Net,” are coming under attack from all quarters. Which just goes to prove that markets — and reputations — go down faster than they go up.
Are the messengers really to blame? The Blodgets and Meekers of the world were just products of their time. If they didn’t exist, we would have created them. Investors wanted encouragement. They wanted validation. They wanted to be told they could get rich as Croesus by chasing dumb ideas and stocks of companies with no business plan and no viable way of ever earning a profit.
Perfect Competition
The Internet, with its low barriers to entry, was the great democratizing medium.
Information was available to everyone. This was almost perfect competition as
described in the textbooks.
At the same time, these companies were supposed to offer huge prospects for growth and profits. The business model mattered less than the dot-com domain name.
When the history of this era is written, one can only wonder what future generations of investors will think of some of today’s great ideas, whose profit potential might have appeared limited in a more sober atmosphere:
Pets.com, the defunct online pet-food retailer, learned the hard way that a gimmicky sock puppet was not the equivalent of a good business model. It blew through all its cash, only to learn that pointing and clicking for kibble was not a profitable business.
TheGlobe.com, which describes itself as a “vibrant online community where millions of people around the world interact with each other around common interests and passions,” saw its share price rise more than 600 percent, the biggest gain ever at the time, on the day after it went public in November 1998. If you build it — in this case, free home pages — they may very well come. But it doesn’t ensure a profit.
Webvan, the online grocer, tried to create a niche in a low-margin business in a low-margin medium (the Internet), only to see its shares lose 98 percent of their value since the high in December 1999. Webvan acquired HomeGrocer.com last year and has yet to discover any economies of scale in the Internet grocery business.
Garden.com, an on-line gardening supply merchant, wanted to become the one-stop shopping center for the 67 million folks who get down on their hands and knees and dig in the dirt. The “attractive demographics,” as described in a research report, did nothing for profitability. The company closed up shop in November 2000, a little more than a year after going public, and sold off its inventory, presumably including a bunch of worthless tulip bulbs.
NetJ.com, a company that admitted it “has had no current business for some time” and “no day-to-day operations up to the present time” in a filing with the SEC, got out of the no-current- business business. Last year it acquired Global Tote Limited, which develops interactive horse racing and ancillary betting via satellite and the Internet. While it was finding itself, the stock fell 96 percent to 30 cents.
Whatever the tech gurus were saying about the growth and profit prospects for these and other companies, there was little caveat emptor on the part of the buyer. We live in a litigious society where if someone is harmed, someone has to pay. At a minimum, we demand our messengers perform their mea culpas.
(Caroline Baum is a columnist for Bloomberg News. The opinions expressed are
her own.)
