I was a dotcom sucker. As editor of a now disappeared magazine called BusinessOnline Asia in Singapore in the early 2000s, I was one of those who preached on the pressing need for executives to react to changes brought by the internet.
We were competing in Asia with US magazines that sat on groaning newsstands, full of advertising from funky Silicon Valley start-ups.
Optimism was high. Rationality was checked at the door. And almost everyone sat in thrall at company presentations about what the "information superhighway" had in store.
However, it strikes me that one observation doing the rounds in those days still applies today. We would, we were told, overestimate the impact of the internet in the short term and underestimate it in the long term.
I can unfortunately testify there was a lot of overestimating going on in the early 2000s.
I remember B2B (business-to-business) e-commerce "hubs" were predicted to be the venue for the great bulk of world business transactions in the very near future.
Internet hysteria was a big thing in Australia as well. Kerry Packer's internet play, ecorp, soared to a market capitalisation of $5 billion without the profits to back it up. There were other celebrated internet stocks, such as LibertyOne, Sausage Software and Solution 6. Incidentally, retailers were quaking at the rise of online competitors such as dStore and The Spot. Ah, heady days.
Most fast-money dotcom companies are dead or ignominiously swallowed. The inch-thick magazines that championed them - Red Herring, Business 2.0, Fast Company and The Industry Standard - have gone much the same way.
And here we are, 10 years after the bubble burst, still underestimating the impact of the internet.
How so?
At first glance it is an impact that seems hard to underestimate. After all, business models have been knocked over like ninepins and corporate behemoths such as Google have been brought to life.
Music, photography and print media have all been shaken by the internet and a broader transition to digital technologies.
Those companies caught in
the path of technological change have generally not dealt well with the challenges in the intervening years.
One international example will suffice: in late 1999 Eastman Kodak, the purveyor of those rolls of film we used to use, had a market capitalisation of $20.6 billion; on Friday, little more than 10 years later, it was less than $1 billion.
Gerry Harvey's whingeing about the challenges facing retailers from the internet is old news for a print journalist.
Despite a degree of schadenfreude at a billionaire's discomfort,
I am prepared to put my less-than-noble emotions aside and welcome Harvey to the Rattled-By-The-Internet Club. But seats are still
filling up fast.
Kim Williams of Foxtel is already here. His challenge is not limited to proliferating free-to-air multichannels. It is the prospect of a multiplicity of download and streaming venues finally getting their act together and blowing pay television out of the water.
But, if it is any comfort, David Leckie of Seven, David Gyngell of Nine and Grant Blackley of Ten are in the club as well. The same delivery mechanisms over the internet will be as big a challenge for free-to-air television.
And a special cheerio to David Thodey of Telstra, who has been in the club for a while. (By the way, congratulations on those fat 59 per cent profit margins on your fixed-line telephones you reported last week. I just wonder what eBay's Skype, or similar internet phone services that cost practically nothing, are going to be doing in a couple of years.)
I have an invitation to the club for Frank Lowy as well. He may not attend for a while, but I think he will be turning up.
If Harvey and other retailers are under the hammer thanks to internet retailers - that's what they are really complaining about, so don't be fooled by the tax argument - then that eats into their revenues.
That means their profits take a hit. But you can bet Harvey will be
going to his landlord to see if he
can work out a deal. And so will
all the other retailers affected by internet competition.
Who is the biggest landlord around town? That would be Lowy's Westfield.
When does it happen? Probably not as soon as you may think.
But just as a thought exercise, take a look at some of the companies that have been caught in the past
10 years by a slow-motion car crash created by the internet.
Then extend a similar kind of devastation over a similar time frame to some of the most recent complainers.
If you are surprised at the result, perhaps you shouldn't be. Perhaps you are underestimating the longer-term impacts of the internet and the digitising forces it unleashes.
As a final and much brighter aside, the internet is not just about breaking business models of traditional businesses.
Even a journalist as far down the track as me is enthused by the opportunities of a new business model offered by the iPad.
After my time in Singapore I am cautious about the short-term boosterism of internet stocks. I still don't get Twitter's, to invoke an old term, P2P (path to profitability).
But I am also prepared to be much broader in my views about what happens over the longer term.
Kim, David, David and Grant, thanks for being in the club. Gerry, a big welcome to you. Now, if you will excuse me, I'm just off to (legally) download a movie while I do some internet shopping.
Frequently Asked Questions about this Article…
What can everyday investors learn from the dotcom bubble about investing in internet stocks?
The article’s main lesson is classic: investors often overestimate the short-term impact of internet hype and underestimate its long-term effects. Many early dotcom companies failed, so be cautious about short‑term boosterism in internet stocks, but also recognise that digitisation can reshape whole industries over time.
How has the rise of online retail affected traditional retailers like Harvey Norman?
According to the article, internet retailers have eaten into the revenues and profits of traditional retailers. That pressure is what executives like Gerry Harvey are really complaining about, and affected retailers may try to negotiate rent or costs with landlords to protect margins.
Are pay television and free‑to‑air broadcasters threatened by streaming and download services?
Yes. The article warns that pay television (Foxtel) and free‑to‑air networks (Seven, Nine, Ten) face a growing threat as multiple download and streaming venues mature — a shift that could seriously disrupt traditional TV business models.
Which legacy companies does the article use as examples of internet disruption?
The piece highlights Eastman Kodak — whose market capitalisation fell dramatically over about a decade — and notes that once‑dominant magazines (Red Herring, Business 2.0, Fast Company, The Industry Standard) and many dotcom plays didn’t survive the transition to digital.
How might large landlords like Westfield be impacted by the growth of online shopping?
The article suggests that if retailers’ revenues are squeezed by online competition, they will seek relief from landlords. Westfield (Frank Lowy), described as a major landlord, could therefore be indirectly affected as tenants push for rent or lease adjustments.
Should investors worry about telecom companies like Telstra because of internet phone services?
The article points out that Telstra’s strong fixed‑line margins could face pressure from low‑cost internet phone services (for example, eBay’s Skype). Investors should be aware that VoIP and similar technologies can erode traditional telecom revenues over time.
Does the internet only destroy old business models, or does it create new investment opportunities?
The article emphasises both sides: the internet dismantles many traditional businesses, but it also creates new models and opportunities — the author cites the iPad as an example of exciting new business possibilities enabled by digital platforms.
How should everyday investors approach newer internet companies like Twitter?
The author recommends caution: be wary of short‑term hype and question the path to profitability. At the same time, keep a broader, long‑term view about how digital trends can create value — balance scepticism about immediate returns with attention to lasting disruption.
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