Internet biz set to dazzle amid spectular collapses
PALO ALTO, Calif. (Reuters) - The hottest Internet properties are
expected to sizzle in 1998, but the year will also see some dramatic
failures as entrepreneurs face the challenge to ''show me the money''
to be made on the Web.
That phrase, uttered by actor Cuba Gooding Jr. in the movie ''Jerry
Maguire,'' has become the mantra for Internet pioneers and,
importantly, their investors.
Some Internet speculators have taken a page from those who made
fortunes in the California gold rush by selling pick axes and shovels to
prospectors rather than panning for their own gold.
''The most successful way to make money on the Net is to start a
company, and then sell it,'' said James Kinsella, general manager of
MSNBC on the Internet, a joint venture of Microsoft Corp. and
General Electric Co.'s NBC.
Consolidation is indeed in vogue in the Internet industry as corporate
giants such as Microsoft Corp. and network equipment company Cisco
Systems Inc. gobble up start-ups and other corporations acquire a stake
in the Internet age.
Next year, electronic commerce should begin to take off in the
consumer markets, with early Internet ''homesteaders'' like Netscape
Communications Corp. and Yahoo! Inc. building commerce sites and
adding features.
The Internet remains a major force in technology and will become a
bigger one in business, with more than $9 billion in investment capital
flowing into new companies in the first nine months of 1997, equal to
nearly all of 1996, according to accounting firm Price Waterhouse.
''As in the PC era, we believe the commercialization of the Internet
across industries will represent net (no pun intended) wealth creation of
hundreds of billions of dollars globally ... over the next five to 10 years,''
Goldman Sachs said in a recent report.
But executives and venture capitalists -- the investors who fund
start-up companies -- are predicting some of the Web's first big
corporate failures. They say too much money is funding businesses that
end up on a collision course.
''People need to recognize the next two years are going to be very
painful and very ugly,'' Kinsella said at a recent technology conference.
''Friends of mine are going to see their companies crash and burn on a
regular basis.''
''We need that, or none of us are going to make a profit.''
Some investors and entrepreneurs argue that that the last prime
''beachfront property'' in the largest World Wide Web markets was
snapped up early on.
''One of the things we've seen now is that there is very significant
first-mover advantage,'' said Eff Martin, managing director at Goldman
Sachs.
Some analysts and investors said investing in providing content over the
Net, in particular, was risky.
''I'm pretty skittish about investing in any content areas,'' said Michael
Moritz, a partner at Sequoia Capital of Menlo Park, California, the fund
that helped build Yahoo! from a ''search engine'' for the Web into a
media concern.
''It's too much like being in the magazine start-up business, and there
are a lot of small companies that are not going to be much bigger than
tiny companies,'' he said.
Despite the small size of the companies, investments in them have been
large, and ''when these babies go down, they're going to take a lot of
money with them,'' Moritz said.
But others see ample room for smaller niche competitors.
One such start-up may be iVillage, a New York-based developer of
advertising-sponsored communities for women.
Candice Carpenter, chief executive officer of iVillage, said the
company aims to serve as a form of utility for its members, helping
make their lives easier to manage.
Women who are moms and work outside the home are looking for
advice and tips on everything from food and money to parenting.
''Women's life these days is just one thing: getting things off their 'To
Do' lists. I wish it wasn't that way,'' she said.
Even established technology companies are aiming to use Internet
technology to help make consumers and businesses alike more likely to
engage in electronic transactions.
Lloyd Mahaffey, a senior vice president at VeriFone, which was
acquired this year by computer maker Hewlett-Packard Co., said
consumers are ''convenience animals,'' and products now must simplify
their lives.
Indeed, the largest Internet market is not for media content, but for the
infrastructure needed to expand and develop the Internet itself.
Zona Research, based in Redwood City, California, projects the
Internet-related market will almost triple from 1996 to $106 billion in the
year 2000, but that nearly $82 billion will be for infrastructure like
network equipment and computers.
The market size of Internet content is projected to reach $13.9 billion in
2000, or roughly four times its 1996 levels and double the expected
market size this year.
John Patrick, vice president of Internet technology at International
Business Machines Corp., said 1998 will start a new phase of the
Internet where companies use it to build new electronic services.
These will range from expanded technical support or customer service
to new features like IBM's HotVideo, which links moving figures to
text.
''That's where the real gold is,'' he said.
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