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FROM THE ETHER: Welcome back to Earth

FROM THE ETHER: Welcome back to Earth

In April 1999, I began predicting the Internet stock bubble would burst on November 8, 1999. Well, as many of you have pointed out, it didn't. Instead, dot-com incubators continued hatching schemes for monetising eyeballs in the New Economy, and Wall Street day traders ate up A to Z Internet IPOs. It was tough being my usual prig.

But then came the heart-stopping slides of March and April this year - it seemed the Internet stock bubble had burst after all. The congratulations flowed in. It didn't seem right to enjoy them.

See, no single bubble-bursting day stood out, not November 8, not even the Friday of July 28, when TheStreet.com's Internet index fell nearly 5 per cent, again.

In April 1999, TheStreet.com's index had reached 800. By August 1999, the index was back down to 400. By Nov 8, 1999, it was 800 again. From there, my predictions notwithstanding, it went to 1355. On July 28, TheStreet.com's index was back down to 699.

Behind the indexes on July 28, eBay closed down 63 per cent from its 52-week high. amazon.com closed down 73 per cent, Priceline.com 76 per cent, and CMGI 78 per cent. TheStreet.com, its own stock a dot-com index, closed down 80 per cent from its 52-week high and poor eToys was down 94 per cent.

Of course, there are many sadder stories. Sure, there is a lot of attention paid to dot-coms on the way up, but hardly a peep when they are on the way down. For more of the bleak picture, I suggest you visit a Web site the domain name of which we won't print, at www.216. 150.27.141.

At this cruel satire of Fast Company magazine, you can read reports of "f'd" companies. They are delaying IPOs, spamming desperately, running low on cash, asking employees to work for free (but they can still bring their dogs to the office), laying off staff, losing parades of people, suffering stock declines, shutting down Web sites, merging with slightly less f'd companies, defrauding banks, and declaring bankruptcies.

Many people wonder what to do now that the bubble has burst. Some investors have moved on to the next financial fad: infrastructure companies. Dot-coms are out, and so are incubators. We're overrun with geniuses now saying there is no New Economy - it's the (same old) economy, stupid.

Hey, I want to cooperate, but before we move on to the next stock bubble, this one has a bit more bursting to do.

Consider one of my favorite infrastructure providers, Akamai, a stellar content distribution company spun out of MIT. On November 8, I noted that Akamai had just gone public. Morgan Stanley valued the IPO at $US26 per share. It closed its first day at $145.

I priggishly pointed out that any stock selling for 10,000 times its revenue is overvalued. Nevertheless, Akamai traded up thereafter, to a high of $345. I hope you weren't one of the optimists still holding shares purchased above $78, which is where Akamai closed on July 28, down 77 per cent from its high.

I know this won't win me back any of my former Akamai friends, but $78 a share still values the company at $8 billion, which is three times what Morgan Stanley said it was worth.

Anyway, I think the bubble will burst another half. Now what's important is that these stock market declines not trigger a nuclear winter in the Internet innovation process. There is still quite a lot of Internet innovation to do.

The good news is that there's plenty of venture capital. The bad news is that there is too much. This means that startups will still have too much to spend on bad habits - such as Super Bowl advertising - and too many competitors against which to spend it. There really is nothing worse for your business model than a desperate competitor.

Being the prig again, I just hope most of it doesn't flow to fast found-and-flip financial faddists and their f'd companies.

Technology pundit Bob Metcalfe welcomes comments on the Pay-AS-We-Go Internet at metcalfe@infoworld.com


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