This really is a very thought provoking article on technology, and how what is happening with MSFT affects us all~~~
KLP
Message 13363180
To: John F. Dowd who wrote (41357)
From: John F. Dowd
Thursday, Apr 6, 2000 7:12 AM ET
Reply # of 41423
TO ALL: This should be required reading for everyone on the SI board:
By James K. Glassman, a fellow at the American Enterprise Institute, host of the
Web site
techcentralstation.com
and a member of the advisory board of Americans for Technology Leadership, a
group supported by
Microsoft and other tech firms.
It's not hard to understand why Microsoft's stock price plummeted in the wake of
Monday's unfavorable court
ruling, but what explains the decline of the other high-tech companies that dominate
the Nasdaq Stock Market?
Just look at Microsoft's competitors, the companies that were supposed to benefit
from the federal government's
lawsuit. Scott McNealy, CEO of Sun Microsystems and one of the most aggressive
Microsoft antagonists, was
gloating in a press release Monday after Judge Thomas Penfield Jackson's ruling.
But Sun's stock dropped $3.75
that day. America Online owns Netscape Communications, whose complaint
touched off the federal suit. AOL
stock fell 7% in two days. RealNetworks, cited by Judge Jackson as suffering from
Microsoft's "oppressive thumb
on the scale of competitive fortune," was down 13%. Two makers of operating
systems that compete with
Microsoft's -- Red Hat Software and Apple Computer -- also dropped.
Changing Environment
The rout in Nasdaq stocks -- which only began to bounce back a little Wednesday
-- has been broad and deep.
The breakdown of settlement talks in the Microsoft case was only the catalyst.
What investors are realizing is that
the environment that helped produce the high-tech boom -- low regulation, low
taxes, minimal government
intervention and a low level of corporate rent-seeking -- is changing profoundly.
In the past, no one told the entrepreneurs in the garages of Silicon Valley what
products to invent, how to sell them,
what prices to charge or what deals to offer. Now, the new economy is beginning
to look more like the old -- an
environment in which the winners are not necessarily the companies that please
customers the most but the
companies that do best at keeping government at bay -- or, better yet, at using
government to thwart competitors.
Stock prices are falling because the risks to real innovators are rising.
The pundits continue to argue that tech stocks are in a "bubble." They said the same
thing a year ago, when the
Nasdaq was 40% lower than today -- not to mention five years ago, when it was
80% lower. By this reasoning,
stock prices are falling because they are too high. It is as if the law of gravity
suddenly decided to kick in at, oh,
around 5000 on the index.
But the question is why now? The answer is the increased threats of intervention in
technology markets -- threats
made especially vivid by the Microsoft decision. To be specific:
Doing a Smith & Wesson. The same team that gang-tackled the makers of
cigarettes and guns is going after not
just Microsoft, but smaller high-tech companies. The Justice Department, state
attorneys general and plaintiffs
lawyers are setting their sights on such firms as DoubleClick, the Internet advertising
company accused of privacy
abuses. "We want to do a Smith & Wesson-like thing with DoubleClick," said
Jennifer Granholm, attorney general
of Michigan, last week.
Commenting on Ms. Granholm's statement, legal critic Walter Olson wrote: "We
suppose this means that she and
her colleagues want to invent far-fetched legal theories to attack business practices
that have long been regarded as
lawful; file a great flurry of suits in multiple courts so as to overwhelm the designated
opponent; use the threat of
bankrupting legal expense to muscle it into submission . . . and instill fear into other
businesses that the same thing
could happen to them unless they cooperate." DoubleClick, by the way, is down
38% since the onslaught began.
Biotech blast. In a statement last month, President Clinton and British Prime
Minister Tony Blair made veiled
threats about ending private ownership of human genome information. Prices of
biotech stocks tumbled one-third
(though Wednesday Mr. Clinton backtracked on his remarks).
Taxing e-commerce. Ever since Congress nearly unanimously approved a
moratorium on new Internet taxes, the
National Governors' Association has pushed aggressively to tax electronic sales
across state lines. Gov. Jim
Gilmore of Virginia, who heads the federal commission examining the matter,
worked hard for a ban but failed.
Studies show that sales taxes would throttle the rapid growth of e-commerce and
depress revenues of Internet
companies.
Revenge of the middleman. One of the joys of the Internet is that buyers can go
directly to manufacturers for their
purchases, cutting costs all around. But dealers, suppliers and agents are feeling the
squeeze. Rather than devise
new clicks-and-mortar strategies, these middlemen run whining to politicians for
help.
In South Carolina, auto dealers are pushing a bill that would prohibit car makers
from owning dealerships and
would explicitly bar Internet sales unless local dealers get a piece of the action.
Charles Condon, attorney general
of South Carolina, said of the bill: "What if we passed a statute saying cars couldn't
be sold on a particular
highway? Wouldn't there be outrage? Why is there no outcry when cars cannot be
sold on the information
superhighway?"
Broadband slowdown. Companies are appealing to politicians to increase
telecommunications regulations on the
Internet -- an effort that threatens to hold up faster broadband technologies, already
delayed by bottlenecks caused
by local telephone companies. For a year America Online campaigned in Congress,
in state legislatures and in city
councils across the nation to get laws passed that would force cable companies like
AT&T and Cox to permit
AOL to use, at government-fixed terms, their high-speed cable pipelines. Then, in
January, AOL announced it was
buying Time Warner; suddenly the shoe was on the other foot.
But, as George Gilder pointed out on this page recently, it may be too late to say
"Never mind." The San Francisco
Board of Supervisors is on the verge of mandating cable access, and decision by a
Portland, Ore., municipal body
regulating Internet-by-cable is now in the courts. If Portland wins, thousands of
local governments can become
Internet regulators.
No one ever knows for sure why a stock falls on a given day, but my interpretation
of Nasdaq's sharp decline is
that investors, jarred by the Microsoft decision, have suddenly woken up to these
threats of government
intervention. If they haven't woken up, they had better. And so should Al Gore. The
Clinton administration likes to
take credit for a stock market that has quadrupled in the past decade. It can't avoid
the blame for Nasdaq's
collapse.
General Carnage
While Joel Klein and his Justice Department lawyers were publicly and distastefully
celebrating Judge Jackson's
decision, the market capitalization of Microsoft was dropping by more than $100
billion. That's not some
theoretical figure. It is a loss in real wealth -- in many cases, in retirement savings --
of more than two million direct
shareholders of Microsoft and of tens of millions more who have substantial
holdings of Microsoft in their mutual
funds and annuities.
But Microsoft is only part of the story. The Nasdaq carnage has been
wide-ranging. And why not? The Internet
intervention of government, often in league with trial lawyers, threatens every
high-tech firm in America. |
