It's not clear whether the NASDAQ's recent drubbing is the start of something bigger for Net stocks. Few would argue that Internet stocks will suffer a large correction in 2000, but when the market is roaring upward, it's hard to give that idea more than lip service. Hot markets such as we've seen since October can obscure the obvious. Getting clear about what's obvious is the first step to being prepared for it.
A close look at 1999 reveals that valuations of Internet stocks may seem irrational, but beneath the surface one can see patterns that are as regular as tides.
A year ago, the marriage of major media and Internet portals was said to be critical to the fortunes of both. And consumer e-commerce was viewed as the premier engine of profit. Today, Disney's mating with Infoseek and the NBCi union of myriad dot-coms are viewed by investors as genetic engineering gone awry.
Meanwhile, investors discovered that retailing is at least as tough on the Net as it is on terra firma. Now, clicks 'n bricks mating of consumer Netcos with major retailers is seen as imperative to the fortunes of both. And B2B commerce is viewed as the premier engine of profit.
Driving these mutable trends are immutable forces. As the Internet changes everything, the Internet is changed by everything. `The fundamental things apply as time goes by,' sang Sam to Rick and Ilsa in Casablanca. In business, as in romance, basic principles are as inexorable as gravity.
In 1998 online retail stocks soared on ecstatic projections of holiday shopping. In 1999, despite even grander projections, they were dogged by a deathwatch of endless articles about problems of customer service and shipping.
The irony is that the big Net retailing winners are the major media - not via their Web efforts but from an avalanche of desperate .com advertising dollars.
In both 1998 and 1999 the overall stock market, including the Net sector, experienced sharp declines that ended in October and were followed by equally dramatic recoveries into January. In the 1998 recovery, the stocks of Net retailers scored big gains. In 1999 they badly lagged the pack that was led by B2B.
History says that in 2000, an intrusion of reality on imagination will hit the business-to-business sector. No matter how compelling a new technology may be, deeply rooted business structures of mega-billion dollar industries don't change quickly.
Business took more than a decade to gain significant productivity from the use of PCs. The promise of B2B requires far more profound changes to business processes. The growth curve won't look like a hockey stick.
Just as investors became disabused of simplistic business-model buzz about Net retailing, business-to-business stocks won't continue to ride crazy trains like `vertical market procurement'.
For decades, phones and faxes have given companies the ability to `disintermediate middlemen'. Yet distributors thrived because they organise and serve markets in a highly hands-on fashion. Business-to-business eBay types have a role.
But they won't change everything. Just as fundamental things like customer service and fulfillment became big issues for e-retailing, basics ignored by today's business-to-business fantasists will soon come front and centre.