The high market values of Internet-related companies are justified because such businesses will be the powerhouses of the global economy in the 21st century, according to Stefan Rover, chief executive officer of electronic banking specialist Brokat Infosystems AG.
"What is driving the valuation of Internet companies is the fact that they are taking strategic positions in the post-industrial economy, which is where all future economic growth is going to take place," he said. "The services sector where these companies operate will eventually be 100 times as big as the manufacturing sector. So Internet companies are worth their market value."
Brokat specialises in developing software for Web-based banking applications. The company has a market capitalisation of $US1.3 billion, while its revenues for fiscal 1999 ending June 31, 1999, will be around $US50 million, Rover said.
The company's high market capitalisation reflects the fact that Brokat was first to market in an industry which punishes laggards, Rover said.
"It is very important to be the first to market in a particular sector," Rover said. "Even if your product is not perfect, your customers can still start doing business. In any case, your customers are probably still working out their own business model."
Time to market is key because there will only be a few winners in each sector, Rover said.
"There is only one Amazon.com, and only one Yahoo," he said. "You need to get big quick because only the big will survive. One way to grow quickly is through acquisition, and that's where Internet market valuations become real.
"This emphasis on speed is favouring small, new companies over their larger, older counterparts, Rover said.
"Software companies like ourselves must sell to the new players, not to the old banks who are still worrying about what to do with their branch network," he said. " Rover said the ingredients for success for companies in the new economy -- namely speed and flexibility more than size -- are also likely to hold true for countries looking to become electronic commerce hubs.
Citing the Bahamas, Luxembourg and Singapore as three examples of successful emerging e-commerce models, Rover said that countries need to provide a range of competitive conditions for companies and individuals.
"You need to create a capital market for technology companies, as access to money is one of the keys for growing a company to the size necessary," he said. "You must provide a good legal and regulatory environment, good tax conditions to attract and retain talent, and bring in the large e-commerce service providers like Amazon and Yahoo."
Although it still retains plenty of old-style industrial thinking, Germany has recently begun to give more support to the businesses of the new economy, Rover said.
"People used to think that half of all entrepreneurs in Germany were crazy, and that the other half were exploiting the masses," he said. "But there has been a significant shift in the country's thinking lately."