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| Talk,
Graham Bower,
17 January 1999 | |
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The media seems to have a love-hate relationship with the Internet based businesses that it has dubbed "dotcoms." Only months ago, everyone was hailing the miracle of the new economy. Now it seems you would have to be crazy to invest in technology stocks. So what has changed to cause the media to fall out of love with technology? The slump in high-tech share value can’t have helped, but the hostility we are currently seeing from tabloid newspapers towards the new economy has more to do with jealousy and vested interests than any real understanding of the issues.
The concept of a "new economy" was first coined by business analysts, who observed that modern companies are creating extra value in their products by making things "smarter." Your can see this trend clearly happening when you take a look at the difference between the increasing value of US exports compared to their decreasing mass - quite literally, US industry in producing less physical things, but charging more for them. Information Technology is the magic ingredient here – as companies build more high tech intelligence into their products, they become more valuable.
Whilst the media has focused on the Internet when discussing the New Economy, the effects of the New Economy are having just as much impact on traditional manufacturing industry. Compare a car built ten years ago to a car of today – today’s car weighs significantly less than its counterpart, but is capable of a whole lot more. Modern plastics and metals are used to reduce the weight. Evolutionary computer modelling is used to optimise the car’s aerodynamics. On board computers control the engine, the climate; the entertainment systems, and networked services like global positioning systems, traffic reports, mapping, and even remote servicing. So, despite weighing less than its predecessors, today’s car is a damn sight smarter, and therefore has more value.
The computer software industry takes the idea of the New Economy to its natural limits, where the ultimate product may be nothing more than intellectual property, having no physical mass whatsoever, but still having a huge impact on peoples’ lives. As software is increasingly distributed over the Internet, there need been no physically evidence of the value transferred from software distributor to end user, and the seller could be on the other side of the planet to the user. No surprise, then, that the physical weight of US exports in decreasing in relation to its value!
The Internet has generated huge media enthusiasm as people rapidly adopted it all over the planet. It has become the poster child for the New Economy, and numerous businesses have started cropping up in the hope of making a fast buck out of the opportunities that the Internet seems to present. Some of these have done fantastically well – think of the success of companies like Cisco and Akamai, whose entire business has been built around the Internet. Some online retailers (the infamous "dotcoms") have also enjoyed huge success - typically those that have embraced the unique opportunities that new technologies offer, like Amazon.
Other companies have not been so successful. In the early days of the Internet, there was a "frontier spirit" – dotcom businesses were likened to gold prospectors in the Wild West. There was a naive optimism for the prospects of these companies that bordered on superstition. Dotcoms were the sacred cows of the new economy, and no one was allowed to question their business models – like asking how they were ever going to make money without selling anything. Investors were desperate to get their piece of the action, and as a result they were quite reckless about which companies they invested in. Hence the overvaluation of companies like Lastminute.com, which may have a fine business model, but has no chance in hell of ever living up to the high expectations that were set by it’s share price. Lastminute.com is not a bad business, it’s just an overvalued one. There are other Internet companies out there with much less chance of ever making a profit.
So, while some dotcoms are struggling, there are plenty of other New Economy companies who are doing very nicely, thankyou very much. So then why is the media tarring the whole industry with the same brush? Why should we accept that the New Economy was all rubbish just because of the foolhardy hubris of a few greedy entrepreneurs and investors?
Of course, jittery investors are partly to blame, and it’s true that high tech stocks, like those traded on America’s NASDAQ have lost a lot of value in recent weeks, but I think there’s more to the media’s animosity than that. What media empires like Rupert Murdoch’s "News International" don’t like about the New Economy is the idea of "New Media" as in that which replaces "Old Media" like old Rupe’s tired bunch of snooze papers "The Sun," "The Times" and so on. Of course Rupe would like to debunk the New Economy, because his business has been so slow to embrace it, that he, and his kind risk not being a part of it at all. They went along with all the enthusiasm for the New Economy to begin with, because there wasn’t much they could do about it, but is soon as the New Economy wobbles, they start reading the obituary. In my view, the vying that we’re currently seeing in the media between those pro and anti the New Economy is nothing short of a fight for the future. Well take a not from the history books, Rupe – those who don’t embrace change become the victims of it.
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