> (Book Review from the Wall Street Journal, Note the author of the book is
> the economics editor for Business Week)
>
> How to Think About
> Dot-Coms Coming Down
>
> Book review by L. Gordon Crovitz, senior vice president of Dow Jones
> responsible for electronic publishing.
>
>
> The Wall Street Journal Dec. 21, 2000
>
> THE COMING INTERNET
>
> DEPRESSION
>
> By Michael J. Mandel
>
> (Basic, 167 pages, $24)
>
>
> IT'S BEEN A GLUM TIME for the Internet, with shell-shocked venture
> capitalists, abandoned
> dot-com sock puppets and "B-to-C" morphing to "back to consulting." How
> bad can things get?
> "The Coming Internet Depression" predicts much worse, but before you click
> on
> headforthehills.com, it's worth recalling that the Internet didn't deserve
> all its hype on the way
> up, and it doesn't warrant the d-word now. Businesses on the Web that
> provide value have done
> well and will thrive.
>
> That said, we are in uncertain waters, and Michael Mandel, economics
> editor of Business
> Week, gets full credit for good timing on this apocalyptic book. What
> happens when the forces
> that created the New Economy begin to lose their power? We don't know the
> impact of such
> unnatural acts as venture capitalists returning funds given them to invest
> or a new generation of
> dot-com executives preferring payment in old-economy cash instead of
> options. We may soon
> see.
>
> Mr. Mandel predicts a full depression, extending into the old economy as
> well. First, he
> believes, there will be a steep fall in technology stocks and in
> technology spending by large
> corporations. Second, technology prices, which having been dropping ever
> since the
> announcement of Moore's Law (which notes that microprocessor performance
> doubles every 18
> months), will hold steady or even rise. Third, venture capital will
> disappear for good and the
> IPO market will vanish.
>
> If such a scenario were to come about, productivity growth would slow,
> existing companies
> would face less competition from upstarts, innovation would taper off.
> With imprecise measures
> of the new economy, the Fed could easily get it wrong. "The New Economy,"
> Mr. Mandel
> concludes, "can fall farther and harder than the Old Economy."
>
> True to his dire predictions, Mr. Mandel invokes the New Deal. It's "not
> politically feasible
> now," but "government may have to take a hand in the high-tech sector to
> stabilize the New
> Economy." He urges more government spending for research and worries what
> might happen to
> out-of-work Internet professionals -- members of what he calls the "Palm
> Pilot" class. He does
> not go quite so far as to suggest a WPA.org for Internet make-work, but
> his inclination to view
> government as a solution gives a sense of the alarm this book seeks to
> create.
>
> Before we bury the Internet economy, though, it is worth pausing to
> consider a likelier
> possibility -- that the current slowdown is a leading indicator of
> sustainable, if more modest,
> growth, not a coming depression. Just as the Internet era began in hype,
> expect its current
> slowdown also to be hyped. After all, electricity, the telegraph and
> railroads were all
> disruptive innovations, with their own ups and downs. There were once more
> than 200 auto
> makers in the U.S., but improvements surely continued even as the number
> of firms collapsed.
>
> Rather than facing a new-style depression, we are in the whirlwind of
> Austrian economist
> Joseph Schumpeter's "creative destruction," the self-correcting power of
> markets to sift through
> hype. With luck, we've passed the era when proposed dot-coms could get
> funding if they merely
> forecast hockey-stick-shaped revenue growth (and included footnotes that
> profitability was far
> off). We've all learned that consumers don't look to the Web for every
> area of commerce, as the
> defunct garden.com, pets.com and furniture.com can attest.
>
> Creative destruction means we're returning to a focus on businesses that
> provide products or
> services that customers actually show some sign that they want. To take an
> example at hand,
> you've paid to read this newspaper or, if you're viewing this online,
> you've paid for your
> WSJ.com subscription. A service either brings value or it doesn't, however
> it's delivered. And
> indeed, many dot-coms have found ways to put their content into
> interactive context, whether it's
> trusted news or transparent prices for online consumer auctions.
>
> Perhaps especially in today's tumult, it's important to keep in mind that
> there are dot-coms that
> have built loyal customers and real paths to profitability. The down cycle
> has lowered the share
> values for nearly all players, as the updraft before it supported too many
> of what we now know
> are nonbusinesses. The markets are just now coming to grips with how to
> value the Web's many
> new players. As winning businesses emerge, the next market gurus will be
> the ones who can
> identify valuation methods that work, even if retrospectively. At that
> point, the shell-shocked
> capital markets will reopen.
>
> Mr. Mandel is right in noting that we're entering the next stage in the
> Information Age. "The soul
> of the New Economy is the ability and willingness to take bigger risks, on
> individual and
> societal levels, in pursuit of growth, innovation and change," he writes,
> "and it's this willingness
> to take on risks that will be tested by the coming downturn."
>
> Sure, some venture capitalists got carried away, and certainly many
> companies created solutions
> for nonexistent problems. Still, so long as there are real needs that
> technology can satisfy, there
> will be entrepreneurs who will find the funding for their innovations.
> It's a time for caution, but
> sober drivers on the information highway will see the difference between a
> return to common
> sense and the prospects of a depression.
>
> ---
>
>
