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To: Chuzzlewit who wrote (50701)	7/11/1998 10:22:00 AM
From: Geoff Nunn	Read Replies (1) \| Respond to of 176387

Chuz, Yahoo bulls are making a classic investor error IMO. They assume that when demand for a product or service is growing rapidly - and here it is demand for advertising on the internet that is expected to grow rapidly - that profit is assured. They fail to consider that supply is also part of the equation. They seem oblivious to the possibility that growth in supply may prove to be equally robust, or even overtake demand growth, swamping it. When tulip-bulb investors lost their shirts in 16th century Holland, it wasn't because of a slackening demand for tulips. The demand for the expensive, most highly prized bulbs apparently grew quite rapidly. The problem for investors existed on the supply side. Vast numbers of new farmers entered the business, causing the market to glut and prices to collapse. The tulip-bulb experience illustrates one of the most venerable laws of capitalism: high profits in an industry attract a crowd. A somewhat similar phenomenon occurred at the Atlanta Olympics. Small businesses that manufacture and distribute souvenirs had rosy expectations of making a profit off the the huge crowds attending the olympics. It turned out that the demand by tourists for souvenirs was indeed quite strong. Unfortunately, the market became glutted when vendors from many miles away, including other cities and towns throughout Georgia, trekked to Atlanta to sell their wares. As a result, vendors were forced to sell their wares at heavily discounted prices, and many lost money and went home disappointed. Investors IMO tend to underestimate just how quickly supply can expand when entry is free and easy. Web portals seem to me to provide just such an example. To use a term in economics , supply is perfectly elastic. As long as profits from providing advertising space on the internet are above normal, new firms will enter the business. What is to keep them out? There are no barriers to entry I can see. As new firms enter, prices on advertising will fall. Eventually, profits fall to the point where no one else wants to enter the business. In the case of internet portals, while I may be wrong I see it happening sooner rather than later. Geoff