10/25 03:55
The New Economy Burn-out Will Scar a Generation: Matthew Lynn
By Matthew Lynn
London, Oct. 25 (Bloomberg) -- Most generations have a moment of shared hope or trauma that shapes their expectations of life. For many people living today it was the Great Depression and World War II; for others, it was the cultural and political upheavals of the 1960s. For those now in their 20s and 30s, the defining experience may well be the rise and fall of the new economy.
The roller-coaster ride taken by Internet companies over the past 12 months has been extraordinary, socially and economically. With fortunes being made and unmade in the blink of an eye, how will that affect those living through it?
It may well produce a generation suspicious of innovation and hostile to extravagant promises -- the opposite effect the Internet was supposed to have on people's outlook.
The numbers emerging from the Internet economy describe a trail of debris following what may become known as one of the greatest investment bubbles of all time. The Bloomberg United States Internet Index, which comprises 282 companies, has seen its value fall from almost 300 in March to just 146 now.
Dozens of companies have flourished and then been virtually destroyed in less than a year. Companies such as Mypoints.com Inc., U.S. Interactive Inc. and ICG Communications Inc. have seen more than 97 percent wiped from their market value in a year. Of the companies on that index, only 19 have seen their shares prices rise in the last year. The rest are all showing losses.
In Europe, the picture is just as bleak. Bloomberg's European Internet Index, which comprises 145 companies, has seen its value slump from 565 in the spring to just 229 now. Only 16 companies have managed to improve their share prices for the year. The rest are all down.
Anthem for Doomed Youth
Again, as in the U.S., companies that less than a year ago seemed champions of Europe's new economy have been crushed. QXL.com Plc has seen its shares drop by 93 percent; Moneyextra Plc has dropped by 90 percent; and 365 Corp. Plc is down by 76 percent. Businesses that were once worth hundreds of millions have been reduced to penny stocks.
Entrepreneurs who thought they were worth tens of million have been turned back from investment gods to mere fallible mortals. As Wilfred Owen wrote in ``Anthem for Doomed Youth,'' ``What passing bells for these who die as cattle.''
It is facile to compare the burning up of a few over-hyped Internet stocks to the slaughter of the First World War battlefields. Even so, it has been a traumatic event, and one which, like any trauma, shakes people's perceptions and re-defines their mental landscape.
Survivors of wars suffer from shell shock. Likewise, survivors of the Internet bubble are likely suffer some form of dizziness and disorientation. In their case, it is likely to be their sense of what things are worth, and how they are valued, that becomes warped.
Slough of Despond
The financial markets are phlegmatic places. Sentiment and psychology are not usually considered part of the way the game is played. The Internet story, however, was about little else. It rose on a wave of optimism and exuberance. It's now sinking into the slough of despond.
There are three distinct groups of new economy casualties, who might be expected to react in their own way.
A new class is being created, the ex-billionaire. The U.S. and Europe are both littered with fallen Internet stars. In the U.K., Jon Bulkeley, chairman of QXL, had shares in his company worth more then 130 million pounds ($188 million) at their peak, and are now worth less than 3 million pounds. Dan Thompson, chief executive of 365 Corp., has that were once worth more than 20 million pounds, and are now at about 5 million pounds.
Then there are the hordes of twenty-somethings who hoped to make their fortunes on the web. There is already a joke that B-2-B now stands for Back to Banking, and B-2-C for Back to Consulting.
Sadder but Wiser
It was from those two professions that the Internet wannabees were mostly drawn: not surprisingly, since those are the two biggest pools of clever, rootless people who would like to become very rich. Those people will slink back to their old, safer careers. They will do so wiser -- but also sadder. A lot of youthful enthusiasm was invested in the idea of the new economy, and, in most cases, the personal returns have been meager.
Lastly, there are the investors, both corporate and individual. A generation of money managers, corporate financiers, and venture capitalists bought into the idea that all you need was an idea, some money and a few talented people and a corporate empire could be created overnight.
A lot of portfolios will be looking sickly as a result of that belief. In years to come, that is going to make it harder for anyone else to raise money to back a new idea. Talk of paradigm shifts or super-highways or any of the rest of the jargon of the new economy will provoke only hollow laughter for years to come.
The price of the exuberance, irrational or otherwise, of the past year will be cynicism. A generation was fooled into thinking all the conventional rules of economics could be suspended. As The Who might put it, they won't be fooled again.
quote.bloomberg.com |
