That is the question I have asked. You hear a lot of Internet hype such as "dominant businesses in revolutionary industries". Ok, what are we saying? Bigger and more revolutionary than radio? Bigger and more important than television? "Dominant", "Revolutionary" -- compared to what? Sorry to be so glib, but I am an investor and I want you to "show me the money".
Let's look at the numbers. America Online is already worth almost twice what CBS Corp trades for and is fast approaching the valuation of Disney. All that and it is basically an ISP -- a function that any one of us could duplicate (on a smaller scale) in our home office, over the span of a weekend. Sure they've got a lot of eyeballs heading through their site, but have we seen anything that justifies the current valuations? How do we know they will even be around in five years. What will happen to AOL once a majority of homes have access to cable modems? Will they try to live off their content? How much is that worth?
Internet advertising is still small potatoes compared to television and radio, and is smaller by far than even advertising in newspapers and magazines. What does everyone expect to happen? All advertising shift to the Internet? It's not going to happen. And if advertising is such an easy road, why are the major television networks suffering? They get billions in advertising revenue every year. The problem is too much competition for the consumer's attention, no one outlet is going to clean up.
Next, web-based shopping. Everyone has gotten excited about e-shopping growing beyond a few billion dollars. Yes, but where is the excitement for catalog shopping? That's at tens of billions of dollars and growing. Do we expect all commerce shift to speciality web sites? Even if it does you still must earn a profit. Were will Amazon's profits come from? They can't raise their prices for fear someone else will step in and undercut them. That's the problem with web-based businesses, anything you do can be duplicated and you can never charge a premium because it is too easy for the consumer to shop around.
I've been using the web on a daily basis for years. Other than my ISP, I don't think I've spent a penny online. I don't read the ads, I don't click through to lean more about featured products and I was a member of Silicon Investor before they started charging. I love the Internet, I believe that it is revolutionary. I just don't think that just because a company is on the internet that it is worth a billion dollars, or in the case of e-bay, $8.6 billion. |
